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The Independent Online
'SIXTEEN billion pounds wiped off share values', screamed yesterday's headlines, but where has this huge sum gone? Can one day's speculation really reduce the value of Britain's businesses by pounds 16bn?

Perhaps the most significant feature of the dramatic summer sale on the Stock Exchange was the lack of customers. Although prices dropped by an average of 5 per cent during the week, the total volume of shares changing hands was way down. The notional value of shareholders' paper assets was down, but little money had actually been lost.

This is not about the health of British companies. It's about the fear of interest-rate rises and investors therefore expecting higher returns on their money. But share prices change before interest rates rise. They change because of expectations, not actual events. In a period of low trading such as the past week, the connection with reality is even further removed. The market-makers who set the prices are not acting so much in line with their own economic expectations, but what they think other people's expectations will be.

As Harold Wilson might have said, it's not the shares in your pocket that are worth less. The same dividend cheques will come through unaltered. It's only if you sell them that you feel the loss.

Curiously, when the Stock Exchange has an exceptionally good day, we never read 'City gains pounds 16bn' headlines. While we are able, in our gloom, to accept that such a sum can suddenly go missing, we are far too sensible to believe it can appear from nowhere.