The performance of financial markets provides information about
where the world economy is going. Of course, as any investor knows,
the signals aren't always right – just consider the
exuberance around bank shares in the run up to the financial
crisis.
But asset values do reflect the bets investors are making. More
is at stake for investors in buying an asset than for economists in
forecasting it. Both pieces of information are useful and both are
fallible; but it generally takes more conviction to invest in
something than to forecast it.
Here's our reading of the financial market data.
Global equity markets have recovered much of the ground they
lost in September and early October in the last six weeks. The
underlying economic fundamentals have not changed much, but
perceptions of geopolitical and financial risk have eased.
