Following a highly volatile development in the first half of 2010, capital markets over the previous year were generally characterised by a positive mood. In the beginning of 2010, the promising trend from the prior year continued without interruption over the short term. Starting with the end of January, however, the mood of the capital market noticeably changed. Growing concerns over the economy’s possibly bottoming out a second time owing to worsening conditions marked a challenging stock market environment of volatile sideways movement. Only towards the end of first quarter 2010 did a promising trend develop, caused by surprisingly positive business results, especially from U.S. financial service providers. This led most markets to temporary highs for the year.
Subsequently, however, economic developments returned to the forefront. At the centre of investor interest, first and foremost, was the public debt of some Southern European EU Member States. This caused stock markets to give back their entire gains for the year in just a few weeks of trading. Most of all, it was the downgrading of the affected debtor countries that led to investors’ increased sensitivity to risk. Only a comprehensive EU assistance package aimed at refinancing the public debt of certain countries managed to put a halt to the market slide. Additional promising support for a reversal of the trend also came from the positive round of six-month company reports. The capital markets consequently posted significant price increases over the summer months.
Additional confidence building signals for a sustained upswing in the stock market came on the economic front. The European economy – propelled to a significant extent by Germany – recovered faster than originally expected. This was reflected in robust increases in numerous leading indicators. In particular, a strong rise in incoming orders in industry and retail lent support to the optimistic mood. Furthermore, the ifo Business Climate Index managed to hit a twenty-year high. The upward trend was temporarily interrupted by the looming insolvency of Ireland. The EU rescue fund that was quickly put together helped to turn back the reversals, and the stock market year ended at close to its previous highs.
The US Dow Jones industrial index consistently maintained a level above the 10,000 point mark over the past year, with an 11% rise once again chalking up double-digit growth. By contrast, the European benchmark index Eurostoxx 50 saw a downturn of -5.8%, while the Japanese leading index, the Nikkei 225, suffered a loss of -3.0%.
CEE stock exchanges performed much better. Overall, the euro-denominated CECE Index rose by almost 16%. This was above all due to better growth forecasts and the lower national debts and deficits than in Western Europe.