The market and the economy in 2010

Admittedly, the year began with a number of optimistic assessments and upbeat predictions. We started 2010 with clear hopes of an upturn in the wake of the most sweeping stimulus and rescue packages of all time. Stock markets, both home and abroad, rose sharply in the first quarter.

After that there was no end to the bad news. Ash from a volcanic outbreak in Iceland paralysed large parts of European civil aviation. The debt crisis escalated in Greece, Ireland, Portugal, Spain and Italy, with fears that it might spread even further afield. A raft of economists presented dire warnings of belt tightening measures within the OECD that would need to continue for years, to the accompaniment of intense protests and demonstrations against the cost-cutting. In the United States, there was talk of a possible double dip, in other words a new recession hard on the heels of the last recession, while China was increasingly seen as exposed to inflation and a growing housing bubble.

All this was topped off with a serious oil disaster in the Gulf of Mexico, followed by stringent restrictions which also affected Norwegian companies. At the time of writing, provisional figures published by the IMF reveal that the upturn in the developed economies has not after all been as significant as was thought. For most of these nations, including Norway, GDP has not yet climbed back to its 2008 level.

In light of these developments, who would have predicted that the OSEBX would rise by 18 per cent last year? Or that the earnings of companies in the index would increase by no less than 31 per cent? Or that volatility (fluctuations) would be lower than for three years?

This was by no means apparent if developments in the market were analysed exclusively in terms of macro news and key figures. In other words, 2010 provided yet another example of the value of understanding companies, industries and long-term developments rather than timing peaks and troughs in the market.