Risk appetite 'drives share gain'

Investors' rediscovered appetite for risk is driving global stock markets higher, according to a forum for the world's most influential bankers.

The Bank for International Settlements (BIS) said readiness to assume risk played a bigger part in share gains than the world's economic recovery.

But the report warned soaring personal debt in many countries could amplify any economic shocks they suffered.

The Basle-based BIS is often dubbed the "central bankers' central bank".

Shares over-valued?

Stock markets in Europe, the US and Asia have all found themselves making significant gains in the last few weeks of 2003 and into 2004.

For the UK, the rise began in October and is up 11% since then - allowing for a sharp dip in late January.

In the US, the blue-chip Dow Jones index is up 15% since early October.

And Japan's Nikkei 225 index has been strengthening since mid-November, gaining as much as 20%.

For the BIS, these gains are to a great extent the result of investors' happiness to assume risk - which, the bank said, was one reason why share prices were going up faster than profits.

The comment is seen as a subtle warning that shares may once again be becoming over-valued.

Knock-on effect

An article in the BIS quarterly report for the December-February period also contained a warning on consumer debt.

It pointed to the way debt had grown faster than income over the past two decades - although it said the gain was less marked relative to household assets.

"The primary macroeconomic impact (of larger debts) will be to amplify shocks to the economy coming from other sources, particularly those that affect household incomes - most notably rises in unemployment," the article said.