Stockmarkets react to Obama victory
The FTSE 100 opened 100 points down today despite a good performance yesterday and the news early this morning that Barack Obama has been elected as the next president of the United States.
Elsewhere, the Democratic senator’s victory has bolstered stockmarkets, with the Nikkei 225 in Japan closing 4.4% up and the Hang Seng in Hong Kong jumping nearly 6%.
Yesterday, the FTSE 100 closed 4% up while the Dow Jones closed 3.28% up.
Simon Denham, managing director of Capital Spreads, says: “The FTSE [opened] a full 100 points lower this morning at 4540 as optimism takes a bit of a battering. The FTSE was being quoted at 4670 last night, but Redrow and Next’s poor trading news did not help.
“The target for the bulls is obviously the magic ‘5000’ level, but we will probably need a bit more good news if we are to get here by the year end.”
Commentators say there is a general expectation among investors that a Democratic White House will help steer the world through the economic crisis.
Nick Ford, from the US desk at Scottish Widows Investment Partnership, says that, historically, equity markets normally profit from a new US leader, and there is no reason to expect this election to be any different.
“The US now has a president with a great chance to restore the country's reputation overseas and measures taken to cure the financial crisis have already been taken,” he says. ”I expect a new feel-good factor to gradually take hold once the worst of the job losses are over and house prices stabilise.”
Ford believes that there is every indication that credit markets are starting to recover, but warns this will not be enough to prevent a “painful” recession next year.
“[However] this has most likely been discounted by the market and history has shown that the best time to buy equities is often during such periods, not when all seems well and valuations are expensive,” he says.
Denham, who is less confident that Obama can do much to alleviate
global economic woe, says: “A new president in a tough situation might
find the difficult decisions, so early in his administration, easier to
dodge than to address.”
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).