ECONOMY

The bourse’s natural fall

The Athens Stock Exchange underwent a relatively fast correction recently and now seems to have stabilized around 4,150 points. The rebound bolstered the confidence of many investors but it would be preferable that they take adequate note of the potential risks. Because the fall and the rebound took place quickly and without victims, optimism seems to be high. Many appear to believe that a strategy of investment in the stock markets is an easy enough exercise: You buy shares and just wait for their prices to rise, as if it is inevitable that they will gain. This is a starry-eyed view of stock markets and seems to take no account of real facts. These tell us that bourse indices throughout the world, in the US, the eurozone and emerging markets, are at four-year highs. Moreover, in the last few years stocks have not had as such high valuation levels relative to firms’ capital and expected profitability. Furthermore, there is no escaping the fact that we are going through a period of high oil prices and rising interest rates. Nevertheless, even should emerging or developed markets go into a slide in the coming weeks, there will be stocks which will record gains. The shares of public organizations do have the potential to remain at relatively high price levels. The shares of companies that become the target of foreign acquisitions will also appear attractive. Of course, we should be mindful of the fact that there is no precedent of an investor who became rich by buying into such companies, and the crucial question remains what will happen to the rest of the listed stocks. It appears that the next champions will emerge among the midsized and small capitalizations. Sure, they are the most vulnerable in a correction, but a crisis today can be controlled for one substantial reason – the high price of oil is the result of strong demand, not inadequate production levels. Rising interest rates do not reflect problems in servicing loans. The possible market correction in some emerging markets would not reflect balance of payment problems nor fears of a suspension in payments by particular governments or financial organizations. Any crisis would come naturally after a period of buoyancy.