|Nils Pratley, Angela Balakrishnan and Ashley Seager
Tuesday April 4, 2006
Stock markets around the world made big advances yesterday as investors bet
that a combination of strong economic news and more takeover deals will send
prices even higher.Warren Buffett, the world's second richest person, helped
the mood by revealing he has made a $14bn (£8bn) long-term bet that stock
markets will not collapse.Berkshire Hathaway, Mr Buffett's investment firm, has
sold a form of insurance to financial institutions wanting to protect
themselves against a drop in "four major equity indexes" over the next 15 to 20
Three of the four of the indexes are outside the US, Berkshire said in a
filing to regulators, and $14bn is the firm's maximum loss. It is one of the
biggest market positions ever disclosed by Mr Buffett.
The FTSE 100 index in London surged back above 6000, closing up 59.7 points,
or 1%, at 6024.3, only 12 points below its five-year high achieved 10 days
American markets, which have been relative laggards for the past two years,
showed similar gains. The Dow Jones was 100 points up but closed just35.62
points higher as rate fears set in, while the S&P 500, a broader index of top
US companies, crossed 1300 for the first time since February 2001 before
closing at 1297.81.
Strategists said the most significant moves may be in Japan, the world's
second largest economy, which has almost been written off by equity investors
for the past decade. Japan's Topix index of smaller companies touched a 14-year
high before slipping back.
The buying spree means all-time highs for a collection of world stock
markets is in sight, a position that would have been unthinkable at the depth of
the dotcom fall-out three years ago. The MSCI World Index of global stock
markets is only 7% below its high point recorded in 2000.
Investors' appetite for the risk of owning shares was reflected in a
sell-off of government bonds. Falling prices pushed up bond yields, with 10-year US
treasury yields hitting a four-year high above 4.9% as investors bet that
central banks such as the US Federal Reserve and the European Central Bank would
keep raising interest rates in the face of the robust global economy.
In the UK, the yield, or income, on 10-year gilts rose to 4.42%, the highest
level since last autumn.
Evidence of inflationary pressures was seen in commodity markets, where the
prices of oil and gold and most other metals climbed. In London, Brent crude
rose by $1.65 to touch $67.93 a barrel at one point, the highest level since
last September and within a dollar of the all-time high hit in the wake of
Hurricane Katrina in August last year.
Copper, up 25% this year, and zinc, 40% better since January, achieved new
all-time highs. Gold jumped to a 25-year high of $591.50 an ounce in intra-day
Andrew Milligan, head of global strategy at Standard Life, said: "I think at
the moment investors are realising there are two major things taking place.
Positive corporate profits are coming through, partly in statements coming
from companies and solid economic data. Lots of business surveys are showing
that it is not just the US economy, but the world economy doing well."
More bids for public companies by private equity firms are almost
guaranteed. Texas Pacific Group, whose investments in Britain have included Debenhams
and Punch Taverns, will soon reveal that it has raised a record $14.25bn
(£8.2bn) for a new fund. Kohlberg Kravis Roberts is likely to beat that with a