Investors trickle back to shares
Monday, 27 August 2007
PARIS, Aug 26 (AFP): After fleeing over the past few weeks to the bond markets due to the crisis in the subprime sector in the United States, investors last week cautiously started returning to shares.
The rebound on the world stocks markets since August 17 following market intervention by the US Federal Reserve has demonstrated that shares are again favoured by investors.
"Last week people bought shares again," said Roland Lescure, an analyst at Groupama Asset Management.
However he said what was taking place was a "rebound, not a (lasting) revival."
For caution remains the order of the day and the movements on the stock markets are nothing compared with those observed since mid-July, when world stock markets plummeted on fears of a global credit crunch.
The crisis has arisen because more and more American households are failing to keep up with payments on home loans in the US subprime mortgage sector, for people with patchy credit histories.
That had raised concerns over a global credit crunch-whereby banks suspend normal lending practices.
"Managers at (mutual funds) are not moving a lot and are waiting to see," said Chicuong Dang, an analyst at Richelieu Finance, who said people would begin returning from summer holidays next week.
Partly reassured by the American central bank over the past few days, investors are now waiting for other signs of help, notably a cut in interest rates by the Federal Reserve Bank at its next meeting on September 18, or even earlier.
Arnaud Riverain, an analyst at Arkeon Finance investment firm, said a move by the Fed to drop rates would support shares rather than bonds, at least in the short term.
However, the effect of a cut in rates by the Fed could be tempered by a decision by the European Central Bank, which signalled again last week that it is preparing to raise its key interest rate once more on September 6.
"Questions about the attitude of the ECB will induce a little hesitation. We are at the stage of a repositioning" of assets, "but there is no great movement by buyers, which will only come after the decisions of the central banks," Riverain said.
Investors are also worried about the effect of the subprime crisis and the credit market on the economy overall as a slowdown in consumption by American households could affect the activities of companies and their results.
"In order for investors who have gone to look for safety, either in cash or bonds, to come back, they have to be reassured of the economic dynamic and the profits that go alongside it," Lescure said. "That can take several weeks," he said.
Despite the rebound in the stock markets, the level of bonds shows that "refuge" placements are still riding high. The yield of the 10-year German Bund was at around 4.255 per cent Thursday, against 4.614 per cent on July 12.
Nevertheless, given the extent of the correction which happened over the summer, observers are looking at when rather than if it comes to the return to the market.
"A lot of the funds are liquid and they will in any case reinvest this liquidity," Riverain said.
The rebound on the world stocks markets since August 17 following market intervention by the US Federal Reserve has demonstrated that shares are again favoured by investors.
"Last week people bought shares again," said Roland Lescure, an analyst at Groupama Asset Management.
However he said what was taking place was a "rebound, not a (lasting) revival."
For caution remains the order of the day and the movements on the stock markets are nothing compared with those observed since mid-July, when world stock markets plummeted on fears of a global credit crunch.
The crisis has arisen because more and more American households are failing to keep up with payments on home loans in the US subprime mortgage sector, for people with patchy credit histories.
That had raised concerns over a global credit crunch-whereby banks suspend normal lending practices.
"Managers at (mutual funds) are not moving a lot and are waiting to see," said Chicuong Dang, an analyst at Richelieu Finance, who said people would begin returning from summer holidays next week.
Partly reassured by the American central bank over the past few days, investors are now waiting for other signs of help, notably a cut in interest rates by the Federal Reserve Bank at its next meeting on September 18, or even earlier.
Arnaud Riverain, an analyst at Arkeon Finance investment firm, said a move by the Fed to drop rates would support shares rather than bonds, at least in the short term.
However, the effect of a cut in rates by the Fed could be tempered by a decision by the European Central Bank, which signalled again last week that it is preparing to raise its key interest rate once more on September 6.
"Questions about the attitude of the ECB will induce a little hesitation. We are at the stage of a repositioning" of assets, "but there is no great movement by buyers, which will only come after the decisions of the central banks," Riverain said.
Investors are also worried about the effect of the subprime crisis and the credit market on the economy overall as a slowdown in consumption by American households could affect the activities of companies and their results.
"In order for investors who have gone to look for safety, either in cash or bonds, to come back, they have to be reassured of the economic dynamic and the profits that go alongside it," Lescure said. "That can take several weeks," he said.
Despite the rebound in the stock markets, the level of bonds shows that "refuge" placements are still riding high. The yield of the 10-year German Bund was at around 4.255 per cent Thursday, against 4.614 per cent on July 12.
Nevertheless, given the extent of the correction which happened over the summer, observers are looking at when rather than if it comes to the return to the market.
"A lot of the funds are liquid and they will in any case reinvest this liquidity," Riverain said.