World economic slump affects development of global stock markets

Due to the spread of the US subprime crisis to the international financial markets and the resulting worldwide economic slump, share prices fell drastically on all major stock markets in 2008. This development already started in spring, when increasing numbers of investors became convinced that the financial crisis would have significant effects on economic developments in the triad markets (Western Europe, North America and Japan) and in the emerging markets. However, only slight effects on the real economy were expected at that point in time. But as the year progressed, many investors became afraid that economic growth would fall much more sharply than had been assumed and that this phase of weak growth might last much longer than in previous downturns. And in last autumn, the dominant question became how long and how deep the recession would be. In this environment, the Dow Jones Euro STOXX 50, the Dow Jones Industrial Average, the S&P 500 and the Nikkei all fell significantly. Indices in the triad markets were also much more volatile. The DAX performed relatively well in autumn; its performance was substantially boosted by the special development of VW’s share price.

Shares were sold of companies in all sectors, although selling pressure was particularly high for shares in European manufacturers of automobiles and commercial vehicles in expectation of a global recession; many portfolio managers decided to give auto stocks a lower weighting in their portfolios or to sell them. Another reason for investors’ aversion to auto stocks was uncertainty concerning the effects of future CO₂ legislation on customer demand and carmakers’ profitability.