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End of Gulf War Shakes up Markets

by Alan Chaikley
***It u a wry gad thing to say, but wan usually turn out to be good/or uwegtorg in grneral
SINCE hostilities began In the Middle East most of the world's stock exchanges have firmed up. after an Initial hesitation
This teems to have surprised some people who did not read up their history
After that Initial shock, stock exchanges always rise during wartimes The reasons are obvious ones wars damage property and kill people, but they create vast and Immediate demands for products and labour
So. looking to the future. Investors estimate that when peace is regained even greater demand will arise to rebuild the damaged assets and revive the standards of living
The 1939-45 war actually lifted the economies of the US and the UK from a long de pression. The Korean war set Japan on a steep rise in Indus trial output. The Vietnam war set the US on a domestic boom which has only recently begun to wane.
It is a very sad thing to say. but wars usually turn out to be good for investors tn general
Wars shake up old systems, open up new opportunities. The price may be terrible in human lives and property, and one could wish that those new opportunities could be encouraged without the bloodshed
and the explosions But those are facts of war.
A "world index" of share values shows a general fall of 20 per cent during 1990. but that was not entirely due to the Gulf crisis of August onwards. A shakeout of overval ued shares was already taking place tn Tokyo and Taipei much earlier
But then the world Index began bottoming out tn November last year, and re vtved steeply in February as tire Middle East hostilities came to a close.
All round the world In re cent months, lower interest rates have begun to make shares more attractive And the Gulf war was a thorough testing ground for much mill tary hardware, for which the market Is now going to soar (metals may benefit from this trend, by the way)
The Southeast Asian countries. plus Japan. Korea and Taiwan, are already raising their military spending: the total is expected to be some US#40 billion this year Malaysia and Thailand have both embarked on big defence
spending of about US52 billion each.
A quick look round the leading financial markets In recent weeks
The US
Unemployment has fallen over the last eight years from 1 I per cent of the workforce (that was In 1981 82 during I he last oil price crisis) to 5 per cent By end 1990 the rate had risen to 6 per cent, but these are historically low fig urea for the American economy — the workforce is very mobile and the social security system tends to put, at least for certain groups of people, a premium on drawing benefits rather than working for a living
Wages have now steadied tn the US. after having risen for eight years The average pay is now over USglO an hour To many other countries, that gum must seem out of this world. It being the equivalent of 280 pesos. 78 Hong Kong dollars. 18.000 rupiah. 180 Indian or 220 Pakistan rupees.
250 baht. 28 ringgit — for one hour*
Wholesale prices rose about 7 per cent during 1990 which is high. Towards the end of 1990. Industrial output dropped so It looked as If the economy was entering a pe rtod of stagflation. But bust nesses seem to have become cleverer at adjusting to changed environments very swiftly.
Usually at the onset of a slump, inventories of goods pile up fast In the warehouses and shops — but this time they have risen only moderately Thus some analysts say the slump will be shallow and short.
Some trends were worry Ing. though. Sales of new dwellings fell 17 per cent last year. Indicating overproduction of housing against growth of income: hence the steep crash of many savings and loans banks
Corporate debt has piled up since 1983 and now amounts to an overlarge 38 per cent of gross national product. Some harsh surgery in many corpo rate balance sheets has be-
come necessary with much distress selling of assets
Despite all this gloom the Dow Jones index on Wall Street rose steeply to the 2.600 level In mid January this year, and a month later wus close to 3.000 So the general body of Investors thinks that better news Is on the way soon
Japan
Signs of slower economic growth have surfaced for the first time In ages In Japan but unlike the US recession the Japanese slowdown shows that the authorities are guiding the economy along Its path of re trenchment The financial system Is being restructured and public works are being ex panded
The official Economic Plan nlng Agency has scaled back Its estimates of growth and some private analysts say that this growth will be the lowest in 20 years Nevertheless the economy is not losing its underlying strength.
Tokyo’s stock market has swung wildly tn recent months. Once upon a time, back at the end of 1989. the
fowling Nikkei share price tn dex stood at 35.000 By August laat year it was down to 23 000 and then It wobbled -25000 m mid December down again up again until by mid February this year it had climbed back through 28 000
As the Iraq crisis drew to a close it reacted back to 26 000 The outlook Is that prices will rise only hesitantly all this year
Ixtndm
The outlook for Britain is uncertain Industrial output Is down sharply leading to stag nation accompanied by rising prices ("stagflation')
The thing to remember in these days however Is that the giant economies of the West and even of Japan are not the overwhelming Influences that they used to be More and more of the trade of the Asian countries, and also the finance that goes with IL is between the countries of the regton
The markets in Thailand. Malaysia Indonesia. China. India. Taiwan — these are ail buoyant They could be the source of great cooperative prosperity by the interchange of trade and finance
— OrpthnTu-s Asia