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Close Sentiment shifts as credit woes sink in By Gillian Tett Published: January 22 2008 02:00 | Last updated: January 22 2008 02:00 In recent months, global investors have faced a conundrum. While the mood in the credit world has been black, until the start of this month equity markets were much less gloomy. So the question that hung over the markets as 2008 dawnedwas: which asset class was "correct"? Were credit prices too gloomy about the outlook? Or had equity investors in 2007 been too complacent about banking woes? Now an answer is emerging. Equity investors appear to have concluded that the credit markets were correct after all. In recent days stock prices have fallen sharply across the globe, culminating in yesterday's sell-off in Asia and Europe. While this has not yet brought equities and credit entirely into line, it means "equity markets seem to be playing catch-up trading [with credit]", as the latest weekly research update from State Street Global Markets says. There are at least two, interrelated, reasons for this sentiment shift. One is a growing recognition that the credit crunch could put a noticeable brake on economic growth this year, or even tip the US economy into recession. Until recently, this was not the dominant view of the equity world, partly because there were hopes that any hits to growth from the financial woes would be offset by continued boom in Asia and other emerging markets and by continued strong earnings growth.
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This note was uploaded on 02/05/2012 for the course FINANCE 101 taught by Professor George during the Spring '11 term at University of Phoenix.

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FT_Tett_Sentiment - FT.com print article

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