Editor's Letter : Dear Reader

Risk and Return

 

 

ED-Letter_mast_Jan-03_img_0One word captures the diverse set of legal, financial and operating factors that bashed and battered world mar-kets in 2002—risk. Like a storm, freak gusts came from unexpected quarters as well as from regions where pres-sure had been long building.

The reactions of companies and individuals is to hunker down, offer-ing the slimmest profile to the tem-pest. That’s been played out in many arenas during 2002, as investors spurned share offerings and com-panies shuttered ambitious new projects. Getting back to basics was the mantra of the past year, and that theme will clearly con-tinue throughout 2003.

What does that mean for companies that are trying to do what companies should do—invest capital to grow and make profits? Well,clearly money is not going to grow on trees.Until markets sta-bilize, new equity offerings will be thin on the ground. Banks are also going back to basics, shunning lending cheap money to com-panies in the hope of gaining fee-paying business.With the rolling implementation of the Basle II guidelines, they are not about to open their pocketbooks to all and sundry any time soon.

So does that mean a credit squeeze will choke off recovery in 2003? No, except perhaps in certain parts of the world, like Japan. In other areas, there are tentative signs that appetite for risk is starting to grow again. US corporate bond markets have rebounded strongly, for example.

Of course, the specter of war in the Gulf and rocketing oil prices threaten to derail any recovery, and with that uncertainty it’s little surprise that traditional safe havens such as gold are prov-ing so alluring.

Of course, the specter of war in the Gulf and rocketing oil prices threaten to derail any recovery, and with that uncertainty it’s little surprise that traditional safe havens such as gold are prov-ing so alluring.

Until next month,

Mark Johnson
mark@gfinance.co.uk
 

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