LONDON (AFX) - The London bull market that has seen shares rise in value by a third over the past two years is finished, The Sunday Telegraph reported citing leading equity strategists and economists.
Market analysts say that low growth prospects in the US and the weak dollar, combined with rising inflation, could see an end to the growth in stock market values for the rest of the year, according to the article.
Their comments came as markets around the world suffered the biggest sell-off for more than two years at the end of last week.
Teun Draaisma, the head of European equity strategy at Morgan Stanley, said the bank was advising its clients to take what profits they had made over the past two years and reinvest in defensive stocks such as tobacco.
'We recommend our clients to be defensively positioned. We are in for a very troubled summer,' he reportedly told the newspaper.
'There are a lot of macro risks. The dollar is very, very weak, inflation risk is rising rapidly due to commodity prices and there are a lot of growth risks as well.' He said the market had ignored these factors and is due a correction, according to the newspaper. 'It is anybody's guess what happens this week but six months from now the markets will be lower,' he added.
Gerard Lyons, the chief economist at Standard Chartered, said that because of the 'unprecedented' weakness of the dollar a correction in stock markets of 10 pct more is highly likely.
'This is an extremely serious development that should not be underestimated,' Lyons is reported as saying. 'We see the dollar weakening further, allied with rising oil prices and higher interest rates This is a combination that will leave equity markets very vulnerable... there are difficult times ahead.'
Doug McWilliams, the chief executive of the Centre for Economics and Business Research, said the signs of the sell-off had been apparent for some time. 'The bond market started going south in March and normally when that happens the equity market follows,' he told the newspaper.
'We reckoned that movement of that scale in the bond market was such that it would be bizarre if the equity market would not follow, he added. newsdesk@afxnews.com ml/jlw COPYRIGHT Copyright AFX News Limited 2005. All rights reserved. The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News. AFX News and AFX Financial News Logo are registered trademarks of AFX News Limited