More sellers than buyers in the shares market
Jul 9 2008 By Nevill Boyd Maunsell, Economics Editor
If you have shares, prepare to shed them now. It is, of course, far too late, as it was for Mark Anthony. Caesar was already dead.
Leave out “resources”, the oil and mining companies that are growing obese on the insane prices we are all paying for their products, and the 100-share Footsie has lost half of all its gain from the dizzy bull market that began in March, 2003.
The likelihood is that you have parted with some of your shares along the way. Edward Menashy at Charles Stanley has found research from the investment manager State Street calculating that retail investors – people, not institutions – dumped £35 billion of equities last year and another £32 billion in the first five months of 2008. That extracted all the retail money that flowed into equities between 2002 and 2006. In other words, more sellers than buyers.
This summer, though, some things are no longer quite what they seemed. Remember the comforting theory that booming Asian economies will mop up any undue slack that the credit crunch inflicts on the old industrialised world?
Well, not everyone in Asia is quite so sure.
Mr Menashy notes that Chinese and Indian shares are now down by half from their 2007 peaks. More sellers than buyers there, too.
Then rates for chartering cargo ships have fallen substantially. And the mining shares that have cushioned the Footsie for much of this year have started going backwards. They are down 17 per cent from their peaks. It was they and some oil shares which led the way down in Tuesday’s stock market shake-out.
Crude itself dipped sharply earlier this week. It steadied, but did little more than steady, yesterday at the spectacle of Iran loosing off a practice volley of nine missiles, no less.
A month ago that would have been good for a spike of at least $5 on the price.
Signs that the pain inflicted by the energy and commodity boom is spreading wider than we thought is cause for reflection rather than celebration.
A global slowdown, even if it never ripens into a recession, is more dangerous than a couple of regional ones.
What this does suggest is that the old-style cycle is starting to turn.
Unsustainable commodity prices may at last be sapping the demand that made them unsustainable. It is sure to be an uncomfortable process, but a familiar one – and less uncomfortable than other (Chinese and Indian) people indefinitely supporting commodity prices that we cannot afford.
Whether we actually have a recession is a matter of definitions. We are having a thoroughly bad time and it is set to last a while.
Stock markets, though, are supposed to anticipate trends, to “look across the valley” in times like these.
Sadly they rarely do so until they have had at least one pleasant surprise.
A longer skid in the price of oil might do, plus not too many dividend cuts like DTZ’s.
Anyway that most persistent champion of the bull market, Mike Lenhoff at Brewin Dolphin has finally abandoned his forecast that the Footsie would end the year at 7200.
He has trimmed it to 6200. Last night the index closed at 5529.6
