Stock exchange prices posted a major recovery in 2009, despite the most serious economic crisis since the Great Depression in the 1930s.
Although the bank rescue packages introduced in 2008 brought the markets short-term relief, the first weeks of last year were dominated by concerns about future continued economic growth. Many companies also published sharply diminished results. Consequently, the start of 2009 saw renewed price losses, leading in some cases to lows not seen for many years. Central banks therefore felt impelled to provide markets with additional liquidity by expanding their security purchases. As a result of these measures and of positive performance surprises from financial services companies toward the end of first quarter 2009, equity markets underwent a change in sentiment. This was the beginning of an impressive equities rally that quickly made up for the losses recorded at the beginning of the year.
The first indicators of a stabilisation of the downtrend in economic activity signalled that the monetary and fiscal policy measures were having an effect. The process of forming a bottom was seen in an improved business climate for the many European companies with a strong export orientation, in increased industrial production and in an improvement in U.S. consumer sentiment. This led to better stock exchange momentum and encouraged international investors to reinvest the massive amounts of available liquidity in the equity markets.
Persistent uncertainties regarding future economic developments and the outlook for interest rates were in evidence in the recurring moderate setbacks that interrupted the upward trend in equity prices throughout the remainder of the year. Consequently, the threat of a default in payment by a subsidiary of the Arabian emirate of Dubai, following a downturn in the local real estate sector, created a brief shockwave in capital markets. Concerns about Greek government finances also resulted in temporary price declines toward the end of 2009.
The U.S. Dow Jones Industrial index once again managed to break through the 10,000-point level, recording a price gain of 18.8% for last year. When compared with the low
reached on 9 March 2009, the increase was a remarkable 59.3%. European stock exchanges also posted strong gains in 2009. The European Eurostoxx 50 benchmark index, for example, showed a year-over-year performance of 21.0%.
Like U.S. equities markets, European trading centres also showed price movements that were strikingly divided into two periods. Dramatic price losses at the start of the year were juxtaposed to a major rise starting at the end of the 1st quarter. The Nikkei 225, the Japanese leading index, also experienced similar price movements and ended with a similar overall increase of around 19%.
Emerging markets were hit particularly hard by the risk aversion dominating the markets at the beginning of 2009. Fears of imminent national bankruptcies in the CEE region and declining confidence in the region’s future economic growth caused the CECE index (in EUR) in February of last year to fall to its low of 796.81 points. This collapse in prices was overcome by an impressive upturn in the remainder of the year. Mainly as a result of greater differentiation on the part of investors and rating agencies in assessing the risk of individual countries, and a return of confidence in a comparatively strong and quick economic recovery, the index rose by more than 100% off its low.