Stockmarkets react to Obama victory

5 November 2008

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 alleviateglobal economic woe, says: “A new president in a tough situation mightfind the difficult decisions, so early in his administration, easier tododge than to address.”

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