Zimbabwe Not an Exception that 'Inflation drives Stock Markets'

In the previous post http://niftywhatcanhappen.blogspot.com/2009/11/what-drives-stock-market-up-growth-or.html I had mentioned that I will elaborate further on how Zimbabwe is not an exception to the contrarian theory that its inflations that drives the Markets, so here I am to put in some more facts that will prove the theory.

The Chinese Index, the Shanghai Composite was trading at close to 1500 in 1992, and the same index was languishing at 1000 in 2006, a loss of 50% after 14 yrs inspite of unbeatable GDP Growth rate of close to 10% in the same time frame, so friends has the GDP Growth pulled the Market, the answer is no. The Brazilian Index, Bovespa zoomed more than 200 times in the period between Jan 1993 to December 1994, But the Brazilian Economy was not growing at ultra super pace, infact the growth rate dropped a little from 1994 to 1995, but still the Markets gave this handsome return (one of the reason for this zooming was inflation, the other I will post later). The Mexico Economy could not surpass the GDP Growth rate that it saw in 2000 uptil now but the Mexico Stock Index IPC is trading 4 times its 2000 High, so what is driving the Mexico Index, is it the Inflation.

I will be researching further on this topic (and hope that my readers give their opinion maybe seconding me or contradicting me), also we will take a look at how the Government is creating inflation and how it might become necessary to invest in the Stock Markets if the DOW JONES index trades above 10.3K, Also I would be posting my opinion on how the US Dollar is not going to sink, while the other Currencies might sink.

GOLD might touch 1400$ as long as it stays above 1040$

What drives the Stock Market up GROWTH or INFLATION?

Most of the Fundamental Analysts say that growth drives the prices of the Stocks up, is it right? Most of those Analysts said that a drop in the prices of Crude would help the market rally but when Crude prices were tanking most of the World Markets too were tanking, when the Crude fell to 33$ the Dow Jones Industrial Average was not at its life time high, neither the Asian Market Indices like Sensex (India), HangSeng, Shanghai Composite (China) were trading close to lifetime highs but were languishing close to more than 50% down from there lifetime highs and now that the prices of World Markets have improved, the Crude too has more than doubled in price.

A small query for all my readers, do you know the Stock Markets in the World that gave most returns?

Was it Bovespa which traded at 19K in 2000, 8K in 2003 and traded at 74K in 2008 a whopping return of 900% over 5 years, or was it the Sensex which traded at 6K in 2000, 2.3K in 2003 and went on to trade at 21K in 2008 again a handsome return of 800% in 5 years, And I have not forgot the Shanghai composite which was trading at 1.2K in 2006 and went on to trade above 6K in 2008 a return of 500% in just 2 years. But dear readers it seems you have forgot Zimbabwe where the unemployment rate is close to 80%, yes dear readers you have forgot Zimbabwe

According to

http://www.zimbabwemetro.com/finance/stock-exchange/zimbabwe-stock-exchange-market-capitalisation-reaches-us203-billion/

Zimbabwean Stock Market gained 300000%,

http://www.thezimbabwetimes.com/?p=12045

Says that Most shares gained 50,000% in one day

http://www.dailyreckoning.com.au/zimbabwe-stock-market-booms/2007/06/04/

Attributes a smaller return of 12,000% over a year to the Zimbabwean Stock Markets

So friends how come a Country whose employment rate is just 20% gives such handsome returns on investments in Stock Markets, It just due to the fact that the inflation there is running hot as you all know and that the biggest note there is 1 Billion (approx) and it can purchase a loaf of bread for you.

In my next post I will elaborate how Zimbabwe is not an exception but an example of the Contrarian Theory that the Inflation drives the Stock Markets and in a post after that why the US $ would not be sinking but gaining, Till then Take Care and try to beat the INFLATION.