The Hindu Business Line : Booming markets

For an average investor on either side of the Atlantic, these are ominous, if not perplexing, times with stock and commodity markets at "dizzy heights" amid much speculation about a "correction". According to analysts, commodity and stock prices are set to spiral before a correction happens. The current price rise is driven by global economic growth, tight supplies of commodities and, above all, rising flow of investments, as major companies in Europe and America report record profits. Investors and analysts alike are in a quandary about buy, sell or hold.

Western investors in emerging markets — Russia, China, India and Brazil — lead a "buying spree" as these economies embark on a 8-9 per cent per annum growth path. Obviously, the investment mood is buoyant all round. A worrying factor, however, is the high unemployment level in the European Union. This could have even crossed the 10 per cent mark except in Britain where it is less than 2 per cent.

The problems of larger economies such as the US have not melted away. For the US, these include an all-time high trade deficit and its growing reliance on foreign government investors, led by Japan and China, to buy US securities. Then there are question marks about the so-called "lending boom" that fuelled property and housing prices in the US. For some emerging markets the trade deficits have turned into surpluses and boosted their forex reserves to increase the value of their own currencies.

Oil and copper prices have made headline for months and gold and silver prices are hitting 25-year highs. Major global oil exporters saw their oil revenues rise from less than $300 billion in 2002 to almost $700 billion in 2005.

Much about the current global economy, both in emerging and developed markets, will depend on how these oil surpluses are spent, invested or saved. Emerging markets such as China and India are attractive for oil producers with high surpluses though their instincts may turn them to invest mainly in the developed markets of Europe and North America.

Batuk Gathani

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