Sunday night in front of the box fed up with endless images of bombs, refugees and Nato briefings I did a little channel surfing and came across a lovely little film, called A Month By the Lake, starring Vanessa Redgrave. She plays a spinster looking for romance during an Italian holiday just before World War II.
At one point she’s pursued by a gorgeous bit of Italian beefcake who, armed with the conviction that all English women need Italian lovers, makes a pass at her as the fascists are marching through the streets. Hard to believe it failed, huh? Anyway, in a last-ditch attempt to get Redgrave to drop her knickers he boasts that his father has just got the supply contract from the Italian army. “When the war comes we’ll be rich,” he says.
It’s a good thing this boy is not living in the United States today because, although war in Europe is roaring once again, his luck with women would sink to new lows: stocks of companies with military connections these days are flat. However, the rest of the market is soaring.
War may be hell, but Wall Street couldn’t care less. As bombs rain on Serbia, the Dow has been keeping its head way above the 10 000 mark without the help of the guys who make the bombs, missiles and spare parts for all those invisible airplanes. One East Coast broker said he feels stocks in military- industrial companies like Rockwell “won’t make a move until ground troops leave the US and the war changes in people’s minds from being a TV-video game war into a real one”.
Investors who had been holding back before the war because they thought the market was way too high are now piling in because there’s a war on. This is no surprise. For the most part US stock markets have traded up in the early years of major wars fought in foreign lands.
One economist recently noted that in 1942, US blue chip stocks posted a total return of 20,3%, and in the 1942 to 1945 stretch, that return compounded at a 25,4% rate. In 1950, when the Korean War started, big-cap stocks had a return of 31,7%, which grew at a 17,6% annual rate. In 1964 and 1965, as the Vietnam War was heating up, large-cap stocks returned, respectively, 16,5% and 12,5%.
Then there was the Gulf War in the early Nineties when blue chips lost 3,2%. But that conflict could be the exception that proves the rule. Or, conceivably, the war ended so quickly that stocks didn’t have time to get their act together. Or maybe the Nineties market really is just different.
Different is probably a gross understatement. According to one New York trader: “This market has a mind of its own. Everyday we come to work and wonder what’s going to happen today. There are no more rules and even though this war, like all others, is tragic, the markets are going to keep on trading.”
European markets have also been buoyant. But the news for investors on the continent is not all that good. Europe is suffering from low growth and a near deflationary economy. Now there’s war, and wars do cost money. While there may be some room for increased spending without overheating the Eurozone economy, budgets will be strained. Sentiment from global money managers is starting to cool and they are putting funds into improving Asian markets – far away from Kosovo – while being circumspect about the prospects in Europe.
So far only the Greek and Italian stock markets have been stung by the conflict, but as the war drags on the smaller, less mature markets in the region will come under pressure. Greek companies, which have invested in Yugoslavia, have no idea to what extent the war has damaged their investments. There are some 150 Greek/ Yugoslav joint ventures as well as around 80 wholly Greek- owned enterprises in Yugoslavia. The ministry put Greek investments in Serbia and Montenegro at around $1-billion.
Moreover, the economies of Balkan countries like Greece and Bulgaria will begin to see a marked slowdown. Tourism and foreign trade have been severely curtailed and reports from the Ministry of Economics in Athens said the war has already cost the Greek economy $720- million. Their forecast for economic growth would now have to be cut by 0,5%.
Greek exporters that use traditional land routes through Yugoslavia to northern Europe are finding the routes blocked. Tourists are facing the same blocked roads and security checkpoints. Much of the tourism from Europe to Greece and the southern Balkan countries is drying up.
There have also been reports that the Kosovo conflict would cost the Bulgarian economy $260-million a month if it continues for any length of time. The losses would stem from a decline in exports, rising freight transportation costs, delayed deliveries and cancelled contracts. Bulgaria now depends on Central and Western Europe to absorb some 60% of its exports.
An old Motown song once asked in a deep and throaty voice: “War, huh! What is it good for?”
The answer, from a market perspective, remains to be seen.