Bargain Hunters Push Stock Markets Higher

By: Dr. Mike Campbell

World stock exchanges returned (briefly) to the black yesterday as investors picked up shares that have been “oversold” recently. The idea of a share being “oversold” is that its value has dropped below the point where fundamentals in the market suggest that it should be, hence it is cheap. Tuesday saw a wave of buying in European markets that put 2.5% on the value of the stock markets as investors looked to find bargains. Sentiment was helped by the comments of a European Central Bank governing council representative, Christian Noyer who suggested that the French banks finances were sound. The ECB is due to announce the results of so-called stress tests on selected European banks later this month. These tests are designed to give an indication as to how the banks would fare in the event of a future financial crisis and is designed to provide reassurance to investors that EU financial institutions are on a sound footing.

The rallies around the world were regarded as a “technical recovery”, meaning that the correction was based on the hunt for bargains rather than a return of confidence to the market place. This view was born out by today’s trading which has seen the European exchanges trading slightly lower, rather than consolidating yesterdays gains, although US markets are still in positive territory to the tune of 0.3 and 0.6% for the Dow and Nasdaq respectively.

On the currency markets, the Dollar is continuing to lose ground against both the Euro and the Pound which probably reflects a correction of the exaggerated losses both experiences during the recent European debt crisis worries. The greenback is also losing ground against the Yen which is more difficult to rationalise. The Dollar is currently trading at 87.185 Yen.