Western stock markets in bubble-mode, again

Financial Events


Stocks Mar13.pngThe blog’s 6 monthly review of global stock markets highlights a very unusual pattern since global demand and chemical markets peaked on 29 April 2011, as the chart shows:

• Markets in developed economies have powered ahead with Japan up 24%, the US S&P 500 up 14%, the UK up 8% and Germany up 6%
• Markets in emerging economies have gone in the opposite direction with Russia down 24%, China down 20% and Brazil down 11%, whilst India is up marginally by 3%
• Meanwhile, the US 30-year government bond is up most at 26%

The rationale for this diverse performance seems to be:

• Demand remains very weak in all major economies, so export-orientated countries such as Russia, China and Brazil are suffering badly
• India is a more closed economy, so is less impacted by the loss of exports
• However Western markets have been influenced by the major central bank liquidity programmes, which have provided virtually free cash to investors
• They have therefore chased share prices higher just as in the dot-com and subprime bubbles
• More cautious investors, concerned over return of capital rather than return on capital, have instead gone to the safety of G7 government bonds

The history of Japan since its financial bubble burst in 1989 supports this interpretation. Every few years, a new premier has arrived who has promised to restore growth. This is what has happened recently since Abe was elected in December. Stock markets have routinely rallied 50% or more in response, as between 2003-7 when the Nikkei rose from 8000 to 18000.

But, of course, the political hype cannot hide the fact that Japan is now an ageing society, with the oldest median age in the world at 45 years. 45% of its population is now over 50 years, and so they only need replacement products rather than new. Equally, they have lower incomes as they move into retirement.

This is the same situation as in Germany, which also has a median age of 45 years and 44% of its population over 50 years. Other Western countries have similar age profiles, though not quite so extreme. Thus we can confidently expect the current market bubble to explode in time.

The tragedy is that the politicians, by failing to understand demographics, are creating a vicious circle. The liquidity programmes simply pile up more debt, to be repaid by the younger generation. So they will lose most, as their standard of living suffers in the future.


"Its the oil price, stupid!"


Famously, when Bill Clinton ran his successful presidential campaign in 1992, hi...

Learn more

Xi Jinping needs to repeat his father's economic success


Xi Jinping was formally confirmed as China’s new president this week. But ...

Learn more
More posts
The end of China’s real estate bubble will impact global supply chains, exports and growth

“How did you go bankrupt?” Bill asked. “Two ways,” Mike said. “Gradually, then suddenly....

An Evergrande default could reset the Chinese, and global, economy

China’s economy has been ‘subprime on steroids’ since the financial crisis in 2008...

“When all the experts and forecasts agree — something else is going to happen”, Bob Farrell

In January, “everyone knew” that inflation was about to take off, and that the US$ was g...

Chart of the Year – CAPE Index signals negative S&P 500 returns to 2030

Each year, it seems there is only one candidate for Chart of the Year. And 2020 is no exception. It ...

Economic risks rise as the lockdowns end

It is now 13 years since I wrote the first post here, in June 2007. A lot has happened since then: ...

China’s property sector is at the epicentre of the crisis

A branch of Centaline Property Agency in Hong Kong © Bloomberg Indebted Chinese property developers...

“They may ring their bells now, before long they will be wringing their hands”

The wisdom of Sir Robert Walpole, the UK’s first premier, seems the only possible response to ...

Will stock markets see a Minsky Moment in 2020?

Few investors now remember the days when price discovery was thought to be the key role of stock mar...


Market Intelligence

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

Learn more


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