Sunday, December 31, 2006

Financial markets: the year in review

The year is out and almost everything has ended on an up note, at least as far as the financial markets are concerned.

We've seen a year of big-time deals, new financial products launched, consolidation across all sectors and locales, rising global stock markets, and record prices for art and auctionable goods. The operative phrase in 2006 was "global liquidity", and a clutch of articles (including some of our own) chronicled this wave of liquidity and the markets that floated higher on its rising tide.

With that in mind, I want to relay one more observation now that the year is done and the final results are in. I'm sure many of you have noticed that almost all share markets were higher this year. Looking over the past few issues of Barron's and the year-ending tables in the Financial Times global indexes confirms this trend. There seemed to be hardly any down performers on the year among share indexes tracked.

In fact the only areas that ended the year on the down note seem to be Japanese small-cap and, in local currencies, Istanbul's IMKB index and the Bangkok SET index (which is up 6.08% in US Dollar terms according to the Dow Jones Global Indexes table published in Barron's).

Also, off the top of my head, I'd guess that most of the Middle Eastern and Gulf share markets are down on the year and a quick look at AMEInfo confirms this.

Interestingly, one of the big percentage gainers on the year was the Caracas General index, up 156 percent in local currency terms according to Barron's foreign stock indices table. Is this outsized gain a reflection of investor optimism or is it a sign of Venezuela's weak currency and inflation?

Given the background of a synchronized rise in share markets, commodities, art, and the number and size of merger and buyout deals, we are left with the question of what the new year will bring. Hey, don't ask me (and if I did know, would I share this information? Well, maybe... but only with you)!

So, let me leave you with the cautionary stance expressed recently by Dr. Marc Faber, as well as his current outlook for 2007.

Until then, have a Happy New Year!