Signs of optimism: world economy will not go down

Signs of optimism: world economy will not go down
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First Published: Thu, Mar 19 2009. 10 03 PM IST

Updated: Thu, Mar 19 2009. 10 03 PM IST
The US Fed’s resort to printing money seems to have had a salutary impact on global stock markets, which have also been buoyed by optimism that the global economy has hit bottom.
Merrill Lynch and Co. Inc’s Global Fund Managers’ survey this month shows that half of those surveyed believe the world economy will not go down further in the next 12 months.
In February, a net 6% thought the world economy would worsen in the next 12 months. This figure was a net 60% in October.
But there doesn’t seem to be much conviction in that belief because a net 41% said they were underweight on equities, higher than 34% in February. That’s despite a net 42% of managers saying they believed equities were undervalued, up from 24% in February. Clearly, the spirit is willing, but the flesh is weak. The Fed seems to be trying its best to add some muscle to that flesh.
In India, too, brokerages are seeing signs of change. For instance, UBS AG has brought out a report titled India: Upturn Ahead, which says their lead economic indicator for the country has turned up.
The report says the indicator “now shows decisive signs of a turnaround in industrial activity”. According to the report, the improvement in the lead indicator is the result of a steeper yield curve, higher growth in M1 and a drop in the currency risk premium. M1 is a measure of money supply that includes all coins and currency. They also argue that the benchmark Sensex index is reacting less and less negatively to bad news.
The trouble is that apart from all other doubts weighing on the markets, political uncertainty is an additional factor that needs to be considered in the Indian context.
Until that’s out of the way, questions will always remain on the sustainability of any policy-induced upswing in the economy.
Write to us at marktomarket@livemint.com
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First Published: Thu, Mar 19 2009. 10 03 PM IST