Will 2010 be a good year for stock investors?

Will 2010 be a good year for stock investors?

The world markets have just recovered from a rather long and severe bear market. The recession has been severe. During this period, economic growth stalled and unemployment rose. Many companies and individuals went bankrupt. Many restructured, cutting cost, reducing excess capacity, conserve cash, sacked staffs, and so on, to remain and to survive. This phase has resulted in many surviving firms reporting a turnaround in their profits. This is reflected in the rise in stock markets. Going forward, these companies will consolidate and strategies for growth will be implemented. It is anticipated that the world economy will grow by 3% next year.

The interest rates of US, Japan and Europe are anticipated to remain low next year. Though their economies are anticipated to grow, these low rates will remain so as not to stifle their initial growths. As for the other countries, some have already raised their interest rates due to their improving economies.

The early rise in interest rate in these countries should be welcomed. The improving economies have enabled these governments to remove the stimulus ("medicine") needed to revive their economies the previous two years. Investors need not fear as equities have done well during these early periods of rising interest rates. Later rises in the interest rates should be viewed more cautiously as they probably are implemented to control rising inflation.

The interest yield curve is the difference between the interest rate of the 10 year treasury note and the 2 year treasury note. It is steepening. Some countries will deliberately keep interest rate low and their currency values competitive to stimulate their economy. The major economies using this policy will see their currencies used for carry trades round the world.

Due to the low interest rate policies and large liquidities the last two years, there is real fear of bubbles created in various asset classes, particularly in properties in certain countries. These countries will need to tackle these lest these lead to future problems. Bursting of bubbles will always be a risk to their economies. (Look at Dubai.)

The market has given good returns to investors since March 2009. The stock market has gone up substantially but it is neither frothy nor bubbly. Though a correction will be welcomed by many, long term investors continue to find values even in the present market. Buying a good stock at a bargain or a fair price requires due diligent and hard work. Good luck for 2010.