Stocks fall on fears of second dip in economy
Published 01/09/2010 | 05:00
MOST European stock exchanges ended August by posting their biggest monthly drops since May, as worries persist about the economy and the possibility of another recession.
The Stoxx 600, which tracks Europe's biggest companies, lost 1.6pc this month while the Dublin-based ISEQ closed down 7.2pc, its biggest monthly decline since May, when the index tumbled 13.3pc.
"If you look at all the noise, all the volatility and all the nervousness, it is clear that this market has one major fear at the moment and that is the double dip," said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets.
"We are not going to have the answer to that one until the fourth quarter. There is more downside risk for equities over the next couple of weeks."
Shares and bonds from countries like Ireland, which are seen as having too much debt, took a battering last month while US and German bonds gained and the Swiss franc strengthened to a record against the euro.
More than $2 trillion has been wiped off the value of global equities since the Federal Reserve said three weeks ago that the pace of US economic recovery will be "more modest".
"The past couple of weeks have been clouded by talk of a double-dip recession," said Ben Westmore, a minerals and energy economist at National Australia Bank in Melbourne. "Until we get some macro news that is more consistent, these markets are going to be a bit choppy."
German government bonds enjoyed their best month since November 2008 in August, rallying 3.8pc. US notes returned 1.7pc, while British gilts earned 4.2pc.
While share values are down, there were some signs of hope for bulls after a five-month decline in allocations to stocks stopped. The survey of 11 British fund managers polled on asset allocations in August shows the average exposure to equities jumped more than three percentage points from July.
"Concerns about a double-dip recession are overblown. In reality such events are really rather rare, especially once a private sector recovery has begun," said Andrew Milligan, head of global strategy at Standard Life Investments.