Investors are likely to remain focused on the progress of domestic structural reforms. The unwinding of cross-shareholdings could be a risk to the Japanese equity market over the coming months. The recent terrorist strikes in the US have made stock market developments more difficult to predict in the short term. The outlook for economic growth in the eurozone has suffered a setback as consensus Gross Domestic Product growth estimates for 2001 have been revised down, business confidence has weakened and exports have slowed. Consumer confidence may also diminish, given a downturn in employment growth, as firms lay off staff to keep costs in check.
Markets are likely to remain volatile amid the uncertainties over the economy and political events.
Stock markets in the area have been prone to sharp swings and some have also been vulnerable to political instability in the countries where they trade. Consensus forecasts suggest that the region's economies will grow at a much slower pace in 2001 compared with the previous year. Although China has maintained a robust expansion, other countries in the region could see their Gross Domestic Product growth rates fall by as much as a half. This is because many exporting countries have seen foreign demand dwindle and they could face greater declines in exports if shell-shocked consumers in the US reduce spending. On a brighter note undemanding equity valuations and declining returns on cash deposits make stocks look more attractive and further corporate restructuring should be positive for the longer-term outlook.