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Last Updated:  Tuesday, 25 March, 2003, 11:00 GMT
Stock market moves explained
The threat of a war against Iraq depressed stock markets for months. Once war began there was a rush to buy shares but the rally went into reverse when early hopes for a short war were dashed. BBC News Online explains.

Why did stock markets rise when war started?

Uncertainty is what stock markets most dislike.

The start of war reassured investors that the crisis would be dealt with quickly rather than being strung out for many more months through negotiations and diplomacy.

The hope was that the war would be short and that an economic recovery would not be too far away.

Stock markets started falling again when Iraqi resistance to US forces proved stiffer than many in the West had anticipated.

The hope receded that war would be quick, decisive and low-cost in terms of civilian casualties and damage to civilian infrastructure.

In short, uncertainty returned.

Have there been similar rallies during previous wars?

Yes, so long as the war is relatively short.

And stock markets have often already priced in the negative sentiment of a war well before conflict actually gets underway.

There was a rally during the 1991 Gulf War, for example.

And traders are hoping that history will repeat itself.

Is it a good time to buy shares then?

Not necessarily.

Analysts point out that shares had broadly been rising steadily during the early 1990s, in what is known as a bull run.

There was a downward blip ahead of the war, but the markets switched back to their upward path once the war was finished.

This time share prices have been caught up in a long-term decline known as a bear market.

And that makes some traders cautious about whether or not a rally can last.

So what other factors will come into play?

The most important element is the health of the global economy.

If the economy recovers, companies will be able to sell more products, beat their profits targets and encourage investors to buy shares again.

Investors also need to be persuaded that companies are trustworthy after a wave of fraud and accounting scandals last year.

In addition, many investors have been hurt by the current bear run and the burst technology bubble and may be nervous of trusting more of their savings to the markets.

Traders and analysts will now be examining these factors to try to decide the overall state - or fundamentals - of the market once conflict is out of the way.

There is also the risk that a longer than expected war will increase damage to the world's economy.


THE MARKETS 9:29 UK
FTSE 100
5760.40
-151.7
Dax
5786.97 -
-129.3
Cac 40
5057.74 -
-92.7
Dow
11380.99
-119.7
Nasdaq
2243.78
-28.9
Launch Market Watch Ticker

SEE ALSO:
Dead cats and market madness
13 Mar 03 |  Business


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