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Market Madness

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07/06/2006

The world’s stock markets have had one hell of a week. Mike Collins holds on tight as he rides the rollercoaster and tries to anticipate the next twist

Investment experts are always warning us that the value of shares can go down as well as up and this week has proved them right on all counts. The FTSE 100 has been yo-yoing from the sublime to the ridiculous in the space of five traded days, and the Far East markets, like Japan, are showing all the reassuring stability of Mount Merapi, the rumbling Indonesian volcano.

Japan’s Nikkei closed down 463 points after Thursday’s trading, the biggest one-day drop in a year and the first time the index has closed under 15,000 in 2006. London’s FTSE finished 2.5% lower, although it was showing signs of a healthy bounceback on Friday morning, and other European indexes lost significant value.

“Many investors must be reaching for the indigestion tablets and wondering what the hell is going on,” said City analyst Colin Perry. “Basically, the main driver behind the recent losses has been concern that the US will need to keep raising interest rates to tackle inflation and that this will slow the economy.”

He continued: “What hasn’t helped is that there is a new man at the Federal Reserve, Ben Bernanke, and the investment community doesn’t perceive him as a safe pair of hands like Alan Greenspan, the previous incumbent and a man deeply respected across the world for his economic insight.

“Another worry was the decision of the European Central Bank to raise the base eurozone rate by a quarter of a point to 2.75%, which means someone somewhere sees inflation as a concern for Europe.”

He concluded: “Volatility is nothing new on the stock markets, but this has been a massively turbulent week. Will it continue? Well, if it does, I hope everyone has a strong stomach. It could be pretty scary.”

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