GLOBAL markets are bouncing back from the initial shock of Japan’s devastating earthquake and the Libyan conflict, with renewed positive sentiment to boost the Australian bourse this week.
The local market is expected to take the lead from Wall Street’s positive close on Friday (US time), which was driven by data outlining a jump in US economic growth at the end of last year.
The Dow Jones Industrial Average posted its sixth gain in seven sessions at Friday’s close as it finished up 50.03 points, or 0.41 per cent, at 12,220.59.
Australia’s market is expected to take the lead from Wall Street and record a positive start to trading this week, after closing 0.92 per cent higher at 4742.6 points, on Friday.Magellan Financial Group chief executive Hamish Douglass said that during the previous week, global markets had wound back to pre-earthquake levels.
“Our view of the situation in Japan at the time when we analysed it — the human tragedy is obviously enormous in Japan — but in terms of a macro-economic event for the world and potentially the world’s financial system, it was a very low-risk event for the world,” he told ABC’s Inside Business yesterday.
Mr Douglass said if there was a “worst case” event in Japan, it would be largely contained to that country.
“Our view was that we thought it was unlikely that the Japanese financial system would collapse, but even if it did, we didn’t see it as a similar situation that could happen in European sovereign debt, or around a major investment bank like Lehman Brothers collapsing.”
While markets have now largely shrugged off the Japanese disaster and digested the ongoing conflict in Libya, which has supported a rise in the oil price to above $US100 a barrel, further unrest in the Middle East could trigger a negative response in global markets.
Mr Douglass said the recent rise in the oil price had not been that significant, but he warned there was the potential for an oil shock, should a new conflict arise in the oil-producing region.
“If you’ve got a major conflict involving some major oil-producing nations, particularly Saudi Arabia, you wouldn’t talk about oil going up $US20 a barrel, you’re potentially talking about it going up $US200 a barrel, and that would completely change the dynamics of the world,” he said.
“Not only would it place many large economies into recession, it would have major consequences for much of the emerging markets of the world.
“So what’s currently going on . . . in Libya, I don’t think is a huge event to the world, but what’s potentially going on with Saudi Arabia and Iran and Bahrain and the potential instability there, that’s potentially a much more serious issue.
“But the concern of the conflict spreading throughout the Middle East is not hitting markets now, which have recovered from Japan’s nuclear crisis.”
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