Is the risk of staying long worth it?

Business, Company Strategy, Economics, Europe, US

 

stock_market_0122.jpgSource of picture: Time.com

 

 

Yesterday I talked about lack of willingness by western banks to lend money because their focus was on rebuilding reserves.

But Steven Major, Global Head of HSBC’s Fixed Income Strategy Team, puts a different spin on the problem.

In the Fragile Recovery video from the Financial Times’ View From The Markets section, he said banks would dearly love to be earning 8-10% from loans rather than the paltry interest rates on leaving cash in reserves or on low-yield government bonds.

The demand for loans simply wasn’t there because the “real economy” had yet to recover to the extent of financial markets, he added.

Stock markets have long been lead indicators, pricing in recoveries before they reach consumers and companies. The same has also become the case with energy markets where price discovery is now driven by futures contracts.

Equities had already priced in strong growth in consumption and company profitability in 2010-11, Major said.

Neither, of course, is guaranteed – meaning that investors entering markets now “are not being paid for the risk”, he continued.

The same is true for oil, but fundamentals are set to catch up very soon with a dip to $45 a barrel on the cards before the end of the year.

Here are a couple of questions anybody attending this weekend’s European Petrochemical Industry Association (EPCA) meeting in Berlin might want to put to chief executive and chief financial officers etc:

*How much of your recovery over the last few months has been the result of cost-cutting and restocking?

*When both come to an end (and this may well have already happened for restocking) how confident are you on a scale of 1-10 that you’ll be able to continue delivering quarter-on-quarter improvements in 2010-11? In other words, can you grow volumes?

The answers could be very telling.

PREVIOUS POST

"It's the level, stupid - it's not the growth rates...."

30/09/2009

…..said Mervyn King, governor of the Bank of England Source of picture: no...

Learn more
NEXT POST

Challenges for chemicals trading in Q4

01/10/2009

The views of two Singapore-based chemicals traders explain some of the fund...

Learn more
More posts
Rate of recovery hugely reliant on effectiveness of government policies
24/09/2020

By John Richardson UNLESS MORE action is taken by developed countries to help counter the impact of ...

Read
China bans on single-use plastics move forward with major recycling investments likely
22/09/2020

By John Richardson THIS EVENT slipped under most people’s radar in the midst of the pandemic crisi...

Read
Developing world polymers demand unlikely to see quick rebound
20/09/2020

By John Richardson THIS IS a tragedy in the genuine sense of the word, not just in the so-often misu...

Read
China’s policy dilemma: raising local demand while protecting exports
13/09/2020

  By John Richardson IN THIS Western-centric world, a huge amount of ink is split over the cons...

Read
China’s polyethylene demand good so far in 2020 but beware of risks ahead
10/09/2020

Note that all the comparisons in this post are on a year-on-year basis unless otherwise stated By Jo...

Read
Ah, I see: China’s booming demand mystery a little closer to being solved
08/09/2020

  Note that all the data comparisons below are on a year-on-year basis By John Richardson THE P...

Read
The China polyester mystery continues in a world turned upside down
07/09/2020

By John Richardson SOMETHING very strange is happening in China’s polyester industry which has eno...

Read
China will struggle to boost local retail sales during rest of 2020 with export outlook uncertain
04/09/2020

By John Richardson IF IT were easy, then there would be an oversupply of owners of large yachts in M...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more