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Tuesday, August 11, 1998 Published at 16:04 GMT 17:04 UK


Business: The Economy

The end of the bull run?

The bull run may be coming to an end

The question on everybody's lips is: are we heading for a sustained bear run, characterised by static or falling share prices, for years to come.

The stockbroker's view

Jeremy Batstone of NatWest Stockbrokers doesn't believe we are heading for a crash.

"I think it is merely a correction. But there is plenty of scope for the gyrations and volatility (in share prices) that we have seen to continue for a while yet."

"It is a time for battening down the hatches. We are going through the rapids at the moment but I don't think that this is the big one," he added.

Mr Batstone believes that the risk of a dangerous deflationary spiral spreading across the world is still a theoretical one.

However he admits that if the world economy does undergo a marked slowdown, with prices falling, it could spell more bad news for company profits and shares.

"A deflationary spiral is a sort of wasting disease. It kinds of creeps up on you and then rots you over time," he said.

Mr Batstone added: "It is only when these conditions look like continuing over a long time period that you then have to fundamentally reassess whether you have to be in shares at all."


James Barty, UK economist at Deutsche Bank, predicts a continutation of this gradual sell-off.
But there are other views as well.

James Barty, UK economist at Deutsche Bank, is more pessimistic than Mr Batstone, predicting that shares will continue to be sold for some time to come.

The fund manager's view

Graham Wood, fund manager at Standard Life, said: "I don't think we are going to have a bear market."

He believes that the short term reaction in share prices looks overdone.

However Mr Wood added: "Looking out six to12 months the UK is worrying because economic forecasts are continuing to be cut and it looks like next year could continue to be a dull year for profits growth.

"Similarly in the US, the second quarter earnings turned out to be a bit less than most people expected. Over the next 12 months I don't think we are going to see much net appreciation in either market."

Mr Wood warns that there is more bad news to come from Asia. "So far the knock on effects (from Asia) have been contained - and if things don't worsen then all we are going to get is a couple of dull years," he said.

However Mr Wood acknowledges that it is a big if.

The stockmarket historian's view

Respected stockmarket historian David Schwartz believes we are heading for a bear market.
[ image: The City of London has been thrown into turmoil by the Asian crisis]
The City of London has been thrown into turmoil by the Asian crisis

"History sends some really clear signals that share prices will continue to fall. A good example is the drop in the last few weeks. History again tells us that this time of year is usually pretty good for share owners and when prices fall they tend to fall by a little bit. When they fall a lot in mid summer is is virtually always that it is associated with a bear market."

He added: "My suggestion is put your money in the bank."

The bullish view

Abby Cohen, strategist at investment bank Goldman Sachs, and the most famous bull on Wall Street, is undaunted by the fall.

She believes the slump in share prices is nothing more than an aberration and last week predicted that the Dow will soon reach 9,300.

Should shareholders sell up?

Mr Batstone says that investors should not panic, but seek refuge in safe stocks with strong earnings prospects rather than high risk issues.

He said: "If we can recover our poise, which I think we should be able to in the medium term, then I don't think there is really anything much to worry about. Clearly we do believe there is scope for the market to bounce back from these levels."

He is predicting a rise in the FTSE index to 5,800 by the end of the year and to up to 6,500 in a year's time.

Analysts also point out that financial institutions have plenty of cash to invest in the stockmarket if market confidence returns, which should help to underpin stock valuations.

And a crash in share prices may actually provide a buying opportunity. After all in 1987, when the last stockmarket crash occurred, share prices ended the year higher than at the start of it.

White knuckle ride

But there are real signs that the world's financial problems could herald a more broad based and potentially longer term decline in share prices than we have seen for some time.

It promises to be a white knuckle ride for investors.

The bears could have savage claws.



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