Ex-Yugoslavia: A dreadful month for equity indices
Overview:
The release of a series of very poor economic data, major credit rating downgrades and poor political leadership on the world scene led to August being a very bad month for global equities. Many of the gains seen so far this year were erased in a short period of very volatile trading. Stock indices in ex-Yugoslavia fell sharply too. This is partly due to a contagion effect and partly a rational response to the adverse effect that slowing global growth and increased risk aversion will have on the economies (and firms) in the region. Even if these economies have recorded (modest) positive growth so far this year the outlook going forward is now less optimistic. Currencies could come under downward pressure again as capital inflows slow. The profitability of most firms will be lessened in this negative scenario.