No one can avoid the tumultuous events that have been taking place around the world – the tsunami in Japan and the uproar in the Middle East are just two global measures that are causing economic changes around the globe. We’ve seen gas prices soar and a rise in food and beverage commodities, but the place in which these changes are especially apparent is the stock market. Inflation has caused investors to shift their assets and determine which of the world’s financial markets are being hit the hardest with higher interest rates and a rise in inflation. If you have any game pieces playing in the stock market you’ll surely want to know which markets are being affected by the ever-changing economic fundamentals.
Which stocks have been winners in the shift? Precious metals and emerging market currencies are hitting all-time or multiyear highs. And rising inflation is the key – investors who believe inflation can be tamed are buying currencies in countries where central banks are raising interest rates to control prices. Those higher rates make the currencies more attractive, leading to big flows of capital into those countries. Just this year, central banks in at least 18 countries have raised interest rates. China, Israel, Brazil, India, Poland and Uruguay are just a few countries that stem from the diverse list. Other central banks, such as those in Asia, are actually battling investors who are bidding up the value of their currencies in order to protect the competitiveness of their export industries.
Gold and silver are also making a comeback in the stock market, with gold hitting a new record and posting its biggest weekly gain in a year. Silver has more than doubled over the past year, closing above $40 an ounce for the first time in 31 years. The moves in gold, precious metals and currencies come on the eve of the annual spring meetings of the International Monetary Fund and World Bank, where officials from the Group of Seven developed economies and the broader Group of 20 will convene in Washington to discuss inflation, interest rates and the state of global currencies. What’s highest on their agenda? The highest priority will be how the rest of the world will help Egypt and Tunisia
revamp their economies.
Due to the slow economic recoveries of both America and Japan, the dollar and the yen are weakening against almost all global currencies, which mean their central banks are highly unlikely to raise interest rates any time soon. The past few weeks have been vastly different in comparison to the past few months, and economic fundamentals are the driving
factor in asset allocation in the stock market. Even as the dollar sinks, U.S. stocks have continued to rise because American corporations are profitable, strong and on the rise. If you have questions about your investments and the shifting market exchanges, please don’t hesitate to drop us a line!