Frothy markets and cracks in the system in 2007

by Ashik Shah on 30 April 2007

Most developed markets have recently reached new highs and remained close to them.  Emerging markets have also done extremely well in general, with a large part of the growth being in the more liquid, higher capitalisation stocks.

In short, markets are still very frothy.  The search for yield has driven investors to more exotic locations and to more risky instruments.  In addition, some have abandoned yield altogether for the prospect of capital appreciation in asset classes such as art, wine, stamps and so on.  Mergers and acquisitions have reached record levels and this time companies from the emerging markets are also making their presence felt.

With so many asset classes being driven up in price by demand from investors, the good times appear to be rolling on.  However, cracks have appeared in the system, such as the problem of sub-prime lending in the USA.  Similarly, the world has begun to comment on the reduced credit quality of loans in general, and particularly to private equity investors.  Interest rates are threatening to rise in many economies, which will not be welcome by anyone whose financial structures are very delicately balanced.

It remains difficult to find value in such circumstances, but not impossible.  Kurm remains invested in solid, well financed, conservatively run companies focused on creating value for shareholders.  Kurm has also developed exposure to certain emerging markets selectively, but on a basis in line with value investment.

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The views expressed and comments made on this website are not personal advice based on your circumstances. The purpose of this website is to provide information and analysis to help you make your own informed investment decisions. If you are not confident making your own investment decisions you should contact a firm which is authorised and regulated by the Financial Conduct Authority (such as Ashik Shah & Co. Ltd.) so that a qualified financial adviser, after considering your personal circumstances and investment objectives, can make personal recommendations of investments which are suitable for you. Whether you make your own investment decisions or prefer to follow the recommendations of a financial adviser you should always remember that your capital will be at risk and that investments can go down in value as well as up.

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