Thursday, October 9, 2008

Are the world economies headed for a recession?

Many experts say some of the economies are already in recession. The IMF head said the world economy was on the "cusp of a recession". Stock Markets across the world are facing significant downward movement. Many investment banks have failed. Some of the commercial banks are also in trouble. Trouble has been brewing in US, UK, Russia, China, Japan and Brazil. Stock Markets have fallen over 50% in last 6 months or so.

We also believe that the world economy is on the "cusp of recession". If more commercial banks or some of the big hedge funds fail, there will be significant ripple effect on the world economy. That can be an event which will trigger most econmies to recession.

Thankfully, leaders and institutions across the world have taken joint action by cutting interest rate by 50 bps. Some of the governments have already announced bailout packages for banks and other financial institutions. It has been done at just the right time. Any delay in all these decisions would have taken most economies to recession. There may be few banks which will fail even after this. The watch should be on big hedge funds as there most of the institutions have invested money. If any of big hedge funds go bust, it will cause a big ripple effect across the financial system.

Indian Finance Minister has also come out with a statement that India is looking good to attain 8% growth rate for this year. Also, the Indian banks are strong and have enough liquidity. Government is ready to support banks with liquidity. The stock markets are going down owing to sentiments set by what is happening at a global stage. The argument definately has merit because slowdown has still not effected Indian companies. The next quarter results and earning will be something that investors should watch out for. If the results are decent, buy into some of the big stocks as the stock markets moving down is just because of global sentiments. FIIs have pulled out significant money off late. However, if the economy continues to perform well, FIIs will be forced to come back with more capital to invest in India because India will then give higher returns compared to other economies which will be recovering from the recession.

Be cautious in investing now and invest in good and known stocks. Do lot of research and then invest. You may end up taking a good investment decision which will reap good returns for the future.

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