The one notable difference between the financial crisis of 2008-09 and the current crisis lies in its impact – how domestic economies are faltering and the contagion effect it is having on the markets. The continued uncertainty in global economies is driven by the possibility of a collapse of the Eurozone, reduced global growth forecasts from the IMF/Worldbank, consequential political instability and the shifting philosophy between austerity and growth inducing spending.
So how has the world economies reacted to the prolonged crisis thus far?
The global turmoil poses a greater threat to developing economies than the 2008 financial crisis did; and already, this is having a negative impact on trade finance and remittances, according to the World Bank.
The drop in trade finance has resulted in a reduction in the flow of critical goods into and out of emerging markets amid warnings that gaps in the agriculture and energy sectors in particular would hurt poor countries.
At the height of the global financial crisis in 2008-09, although India felt its impact, the country was able to weather the storm because finances were in a better shape and inflation was not a threat.
Infact, there was headroom for the Reserve Bank of India (RBI) to lower interest rates to spur growth and domestic demand was robust too. The current scenario is entirely different. Inflation is high and so the central bank is reluctant to cut rates.
In the meanwhile, growth has slowed down and demand has also toned down. Thus, in such times, although the Euro crisis is not the sole factor causing India 's problems, it could nevertheless add on to it.
The single currency bloc is being urged to put its house in order as its problems are threatening to derail the global economy. Brazil ’s Finance Minister Guido Mantega said: “The markets and the corporations have lost confidence in the solutions that are being implemented by the countries in the euro zone. That means the measures being taken are not enough to fix the problems.”
According to the WSJ, “ China’s gross domestic product growth decelerated to its slowest pace since the global financial crisis, dampening hopes that the country will provide much support for the faltering global economy and prompting expectations that Beijing will make fresh moves to stimulate growth. China’s GDP slowed to 7.6% year-over-year in the second quarter, down from 8.1% in the first quarter and its lowest level since the beginning of 2009, dragged down by a combination of Europe-blighted exports, stagnant real estate investment, and the inability—in the short term—for domestic consumption to take up all of the slack”.
In the US markets, stocks came off their worst levels but still closed in negative territory as investors remained jittery ahead of the earnings season and amid renewed global growth concerns. In terms of YTD performance, Dow Jones Industrial Average was up 2.73% at 12,736.29. Nasdaq Composite was also up by 10.69 at 2931.77. Standard & Poor's 500 was up 5.90% at 1352.46.
Most Asian markets were trading firm and positive in year to date performance. China 's Shanghai Composite was down 0.61% or at 2,165.77. Hong Kong 's Hang Seng was up 3.56% at 19,427. Japan 's Nikkei rose 3.48% at 8,857.73. Singapore 's Straits Times gained 9.15% at 2,946.30. South Korea 's Seoul Composite was down 1.97% at 1,829.45. Taiwan 's Taiwan Weighted was up by 2.38 at 7,251.35.
European markets performed abysmally on YTD performance as eurozone finance ministers try to accelerate an initial bailout for ailing Spanish banks. The Spanish market was down by 22.60% at 677.09, The Netherland AEX General was down 3.03% at 308.4, France CAC 40 was 2.73% at 3,156.80 while the UK FTSE 100 and the Austria ATX also both were down 1.27% and 0.56% at 5,627.33 and 1,947.16 respectively.
A cursory review of Nigerian Capital Market in recent time reveals an improved investors' commitment so far in the year, considering the sustained positive posture of Naira votes which further reflects investors' optimism.
So far, market had experienced active bargains and unrelenting patronage, particularly in Q2' 2012. Both value and penny stocks experienced consistent patronage, signifying improved risk appetite of investors as well while side-line participants seems to be active towards investments in equities- this is commendable and could be largely attributed to initiatives and concerted efforts of the stakeholders and regulators towards reviving investors' confidence.
To this regard, we envisage a sustainable bargain trend in the coming periods amid possible market swings as market remained attractive while the incoming market initiatives will continue to spur market activity, barring any unforeseen negative events in the market.
The new global economic crisis, driven by the Eurozone crisis remains a big worry for financial experts, regulators and world leaders as it has created a great dark cloud of uncertainty hanging over global business. One thing investors do not like is unpredictable uncertainties on the back of faltering leadership responses.