THE INTERNATIONAL ENVIRONMENT

Market developments in 2008 were characterised by dramatic price collapses on the stock market, rescue packages and fears of recession. Last year, some people clung to the hope that the ‘subprime’ crisis would turn out to be a localised problem in the USA which would have a short-term effect on international stock markets. Such hopes were dashed in the first half of 2008 as the global credit and banking crisis spiralled into a world-wide financial meltdown. In the climate of mistrust and insecurity, private and institutional investors alike became much more risk-averse, as a consequence of which the stock markets entered a phase of high volatility. Economic forecasts were also revised downwards as the financial crisis increasingly affected the real economy in the second half of 2008. The shockwave spread from the USA to western Europe and Japan, engulfing the rest of the world by the autumn. Virtually all sectors suffered price falls – not just banks and insurance companies.

The international stock markets really began their collapse in mid-September when the US investment bank Lehman Brothers filed for insolvency, totally paralysing the interbank market around the globe. Benchmark indices for all major capital markets dropped, and sharp price falls were recorded on commodities markets, particularly during the fourth quarter of 2008. As a result, most automobile manufacturers announced significant production cutbacks in response to double-digit downturns in sales.

In the United States, the Dow Jones Industrial Average, which reflects the stock prices of 30 of the largest companies in the US economy, shrank by 34 %. The German DAX closed on 4,810.20 points, down 40 % on the year. In October 2008, the British benchmark index FTSE 100 marked its worst performance in the 24 years since the Financial Times Stock Exchange Index of the 100 leading companies began: in yearly comparison, the index fell by 31 %. This coincided with the decline in sterling. A year ago, one pound was worth € 1.36; by the last trading day of 2008, its value had plummeted to € 1.04. Between the start of January and the end of December 2008, the Nikkei also fell by 42 % to close on 8,859.56 points – the poorest performance in the 58-year history of the index.

Development for the domestic benchmark index was even worse than that of indices elsewhere in Europe: the ATX fell by 61 % to approximately 1,750 points, with the ATX Prime losing 64 %. This was a year in which one record fall followed another, day after day. By the end of 2008, market capitalisation for listed companies had plunged from around € 157 bn (on the final day of trading of the previous year) to € 52 bn. The Austrian market was also characterised by greater than average volatility and low turnover. The Vienna Stock Exchange thus recorded its worst year since the launch of the ATX 18 years ago. Experts do not envisage any recovery for the ATX in the months ahead given continuing insecurity over the future pattern of economic activity.

Property shares were amongst the stock most seriously affected. In year-on-year comparison, the Austrian Real Estate Index (IATX) lost around 82 % of its value, a steep fall on the peak price achieved in April of the previous year. None of the real estate stock listed on the IATX fell by less than 70 %. Similarly, the value of the key EPRA index, which represents property stock in Europe, contracted by 49 % (YTD).

Outlook for 2009

Despite the rescue packages worth billions aimed at the banking and automobile sectors, and the economic recovery programmes introduced by various governments, it remains very difficult to gauge how long the financial crisis will persist, and how severe its impact on real economies around the world will be. For this reason, market analysts are predicting a tough 2009 for the stock markets.

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