LONDON, July 15, 2013 /PRNewswire/ --
The last 12 months to May 2013 saw a momentous rise in UK equities, with the FTSE 100 rising by 30% to a high of 6840 on 22 May, 2013. However, the FTSE 100's relentless rise has been interrupted since, prompting the question of whether the equity bull run - in the UK as well as globally - is over.
There are reasons to believe that the good days are gone as the FTSE has fallen sharply on the two previous occasions it traded around the 6,900 level. Indeed, after the index came close to hitting its 1999 high of 6,950.60 in May, it began to drop in value.
According to Saxo Capital Markets, the main factor behind the global equity bull run is quantitative easing (QE), so when the US Federal Reserve Chairman, Ben Bernanke, alluded to a tapering in June, this rocked the markets and led to a massive flight from equities. Since then, the market has settled, equities started to rally again and Bernanke has restated his commitment to accommodative monetary policy. So where to from here?
Steen Jakobsen, Chief Economist & CIO at Saxo, comments:
"There is a fundamental reason why Bernanke would want to maintain a highly accommodative policy for the foreseeable future. The US growth figures are not so good and Bernanke now feels he is behind on both his mandates: Inflation and unemployment.
"With this in sight, QE tapering now seems unlikely to start before December at the earliest. This could successfully calm the markets, but the price could be high and central banks need to realise the truth, as stated by the Bank of International Settlements (BIS) recently, that they seem less and less likely to do 'whatever it takes' to boost growth and that they cannot carry out the necessary repair work of the balance sheets of households and financial institutions.
"Furthermore, central banks can't enforce fiscal restraint or enact structural reforms. Central banks "borrow time" and this is just what Bernanke continues to do.
"The bottom line is that QE will have to come to an end one day and, if the fundamentals aren't there to sustain growth and confidence, when QE is removed, risk assets like equities could witness another exodus."
For more information on equities, please see: http://uk.saxomarkets.com/fx-debates/is-ftse-100-in-equity-bubble-2013
About Saxo Capital Markets
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Uriel Alvarado Cancino, Chief Public Relations and Marketing Officer, Saxo Capital Markets UK
SOURCE Saxo Capital Markets