Analysis: Investors skeptical about genuine global-market recovery

Wed Apr 4, 2012 10:23am EDT
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By Mike Dolan

LONDON (Reuters) - After so many false dawns, long-term investors face the growing problem of how to recognize a genuine, sustainable recovery in global markets - whenever it eventually shows up.

In the wake of one of the steepest first-quarter rallies in world equities in more than a decade, it's been tempting to hail the return of more "normal" times, where the cyclical ebb and flow of the economy dictates predictable investment patterns.

But skepticism remains sky high, and it still doesn't feel right to many investors.

This stock market rally, like so many others over the past three years, is a by-product of central bank money splurges - most recently this year from the European Central Bank and Bank of Japan, following two separate bond-buying programs by the Federal Reserve and Bank of England since 2008.

Yet to date these waves have quickly drained away without meaningfully re-hydrating the underlying economies, leaving stock markets high and dry each time and prone to withering corrections. The policies may well have staved off a disaster, but that's not the same as generating robust growth.

Ironically, more normal times may only become apparent when there is no more need for this emergency money pumping and the underlying economies can stand on their own two feet.

In the meantime, get used to the shady world of the "new normal", the phrase coined by bond fund Pimco to describe years of persistently sub-par growth, stock market false starts and the constant need for new monetary stimuli.

HSBC's global economists insist this long, Japan-style economic funk across the developed world is still the reality and last week warned clients to resist the temptation to chase this year's equity surge as "business as usual".   Continued...

A general view of the DAX board at the Frankfurt stock exchange April 2, 2012. REUTERS/Remote/Amanda Andersen