This article is from the source 'bbc' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.bbc.co.uk/news/business-21696467

The article has changed 4 times. There is an RSS feed of changes available.

Version 0 Version 1
What is driving the global stock market rally? Q&A: What is driving the global stock market rally?
(2 months later)
By Puneet Pal Singh Business Reporter, BBC News, Singapore Stock markets across the globe have been on the upswing over the past few months.
Stock markets across the globe have been on the upswing. In recent days, New York's main Dow Jones share index hit a record high. New York's main Dow Jones share index has broken through the 15,000 mark for the first time, though it snapped its winning run on Thursday. Germany's Dax has hit a fresh record high.
In London, the FTSE 100 touched its highest level in five years. London's FTSE 100 and Japan's Nikkei 225 indexes are trading at their highest levels for five years.
Meanwhile in Asia, the main indexes in Japan and Australia hit their highest levels since 2008, this week.
This means that major stock markets across the world are inching towards levels not seen since the global financial crisis.
What is driving this rally?What is driving this rally?
It is a combination of factors, but the biggest one has been the aggressive stimulus programmes undertaken by various central banks. It is a combination of factors, but the biggest one has been the aggressive stimulus programmes undertaken by various central banks to boost growth.
The US Federal Reserve, the European Central Bank (ECB), the Bank of England (BOE) and the Bank of Japan (BOJ) have all taken aggressive measures to try to spur growth in their economies. The European Central Bank (ECB), the Bank of Korea and the Reserve Bank of Australia have all cut their interest rates this month, while rates in most leading economies are at near-historic lows.
These policies have pumped trillions of dollars of new money into the financial markets. Central banks have also pumped trillions of dollars of new money into the financial markets. And there is no immediate sign of these programmes being wound down.
At the same time, they have also driven down the down the returns on government debt, making other assets, such as shares, more attractive. The Bank of Japan (BOJ) recently increased its purchase of government bonds by 50 trillion yen ($520bn; £350bn) per year, while the US Federal Reserve has kept its $85bn-a-month bond buying in place.
And with interest rates being at near historic lows in most leading economies, investors have been looking increasingly towards the stock markets. This extra money has driven down the returns on government debt, making other assets, such as shares, more attractive.
"There is a lot of money sloshing around in the world right now and there are not many instruments that are giving a good return," says Jeffrey Halley, of Saxo Capital Markets. "If we are entering into a period where we expect very anaemic growth for, say 5-10 years, and we expect interest rates to remain low for 5-10 years, therefore we expect bond markets to have yields that are very low," says Paul Kavanagh from UK-based brokers Killik & Co.
Will this money supply continue? "Then the earnings yield on equities becomes more and more attractive in that environment."
Well, maybe not forever, but in the medium term, yes. What about economic fundamentals?
Earlier this week, the US Federal Reserve officials gave assurances that they would press on with the central bank's quantitative easing (QE) programme, in which it spends $85bn (£56bn) a month on buying bonds. There have been some positive signs in recent economic data that have given investors confidence that the economic recovery in some of the world's largest economies is picking up.
Many analysts are of the opinion that the Fed will continue with the programme till the US economy sees sustained economic growth and the unemployment rate comes down significantly. For instance, US employment rose by more than expected in April, with the economy creating 165,000 jobs, while Germany's industrial orders for March were surprisingly strong.
Meanwhile, Japan's central bank, the BOJ, is facing increasing pressure from the country's newly elected government to take further measures to revive its sluggish economy. Meanwhile, there are now hopes of a recovery in the Japanese economy, after the newly elected government promised aggressive measures to spur growth.
A key part of BOJ's policy stance has been the setting of a 2% inflation rate target. The aggressive monetary stance taken by the BOJ has helped weaken the yen, which boosts the profitability of Japanese exporters when they repatriate their foreign earnings back home.
Japan has been fighting deflation, or falling consumer prices, for the best part of the past two decades. It has been a big hurdle to its attempts to stoke domestic consumption. The markets have also had some respite from the fact that the risk of a break-up of the eurozone, in the wake of the region's debt crisis, has diminished.
The newly elected Japanese prime minister has even suggested that the BOJ print an unlimited amount of yen to try to stoke inflation in the country. Alec Young, global equity strategist at Standard & Poor's, says shares anticipate the future and the current rise reflects the fact that economic fundamentals are expected to be strong.
The idea being that with more money being pumped into the system, consumers will have more cash to spend and that will help drive up consumption and consumer prices. "Right now they're not great but markets are betting the US will be stronger in the second half, that Europe will emerge from recession in the fourth quarter and that we'll continue to see soft landing numbers out of China," he says.
Analysts say given the state of the US and Japanese economies, the two central banks, which have been among the most aggressive, are likely to continue with their stimulus measures. Anything else?
"The Fed wants to achieve 6.5% unemployment rate and the BOJ wants to see 2% inflation," says P K Basu, regional head research and economics at Maybank Kim Eng. Some companies too have huge cash piles sitting on their balance sheets, built up through cutting costs and improving profitability in the downturn.
"Those two targets are unlikely to be met this year, so we will continue to see the central banks stick to their policies." This makes their stock attractive to investors, as it opens up the possibility of investment in new facilities, research and development, which will improve their performance in the long run, as well as the possibility of dividend payouts to shareholders.
Is it just the cash? Are there any risks to the rally?
Well, not really. There are some economic fundamentals that have boosted market sentiment. There are always risks. Any data which suggests disappointment in the US economic recovery, for instance, or that shows a bigger-than-expected slowdown in Chinese growth could knock confidence.
To begin with, investors have been encouraged by the signs of recovery in the US housing market, which is seen as key by many analysts to an overall recovery in the US economy, the world's biggest. So too would an escalation of problems in the eurozone. "The problems in the eurozone have not gone away," says Jeffrey Halley of Saxo Capital Markets.
At the same time, fears of a sharp slowdown in China, the world's second-largest economy, which had emerged last year, have also subsided.
Meanwhile, there are now hopes of a recovery in the Japanese economy, the world's third-largest, after a newly elected government promised aggressive measures to spur growth, which some analysts say is providing a big boost, especially to Asian stocks.
"The biggest uptick is coming from Japan. The situation here is changing," says Ed Rogers, of Rogers Investment Advisors in Tokyo.
The aggressive monetary stance by the BOJ has helped weaken the yen. That Japanese currency has dipped nearly 15% against the US dollar since November last year.
A weak yen helps boost the profitability of Japanese exporters when they repatriate their foreign earnings back home, giving them extra cash to invest in new facilities, research and development and even to raise wages.
All these, says Mr Rogers, contribute towards growth in the real economy.
Some analysts say that the markets have also had some respite from the fact that the risk of a break-up of the eurozone, in wake of the region's debt crisis, has diminished.
"Over the last year, a eurozone breakup was arguably the biggest threat to global economic stability, that has been taken away for now," says Wellian Wiranto, an investment strategist at Barclays.
Are there any risks?
Of course there are, and the biggest one is still the eurozone debt crisis.
Analysts warn that while the threat of a eurozone break-up may have subsided, a long term solution to the debt crisis is yet to be found.
"The problems in eurozone have not gone away," says Mr Halley of Saxo Markets.
"People are either choosing to ignore them or are seeing what they want to see," he adds."People are either choosing to ignore them or are seeing what they want to see," he adds.
He says that with unemployment rising in countries such as Greece and Spain, a delayed solution may see the crisis escalate, a move which he warns is likely to hurt investor morale. In Asia, the big risk is from a conflict between China and Japan, the region's two biggest economies and key trading partners. Trade between the two nations is worth about $345bn (£212bn).
"The markets could turn around as fast as they have gone up," Mr Halley says. Relations between the two soured recently over a set of disputed islands in the East China Sea, to which both lay claim. This led to anti-Japan protests in China which hurt some Japanese exporters, though sales have since picked up.
Over in Asia, the big risk is from a conflict between China and Japan, the region's two biggest economies and key trading partners. Trade between two nations is worth about $345bn (£212bn). But if tensions rise further, it would raise fears of instability in the region and hurt investor sentiment.
Relations between the two have soured in the recent months over a set of disputed islands in the East China Sea, to which both lay claim. Or there could just be a change in general investor sentiment if people start to wonder if equities have come too far too fast in the first few months of the year.
Earlier this year, tensions mounted after Japan accused a Chinese navy frigate of locking its weapon-targeting radar on a Japanese ship. How long could this run continue?
Anti-Japanese protests in China last year, amid rising tensions, hurt Japan's exports to China. "Sell in May and go away" is the old investment cliché that usually gets trotted out at this time of year, based on the belief that growth at the start of the year is significantly stronger and tails off by the time you get to May.
Though sales have since picked up, observers warn that any escalation of the conflict may further harm trade relations between the two. Indeed, the months from June to September have historically been the weakest months of the year for the S&P 500 index in the US.
Any such development is also likely to raise fears of instability in the region and hurt investor sentiment. But many stockbrokers think that share markets, particularly those in the US and Japan - given those central banks' huge stimulus programmes - could continue to rise over the next few weeks, even months.
Some predict a further 20-30% rise over the next few months.
S&P's Mr Young is more cautious in the short term but still believes the overall upward trend will continue.
"In the near term some consolidation would be likely given the huge moves that we've had this year," he says.
"But looking out through the end of the year we think stocks will be higher than they are today in the US."