Posted late this week, sorry...
he world keeps turning. The markets again performed very well last week: the S&P 500 Index rose 1.3%, the Eurostoxx 50 rose 1.7% and Russia rose 3.6% (giving it nearly 10% upside in the last two weeks). Interestingly, oil lost another 0.8%, as OPEC failed to cut output at its regular meeting. Rather than being indisputably positive news, the market rally rather reflected expectations that the world’s central banks would pump money into the system if the results of the Greek election were negative.
As it happens, Greece voted to stay in the Eurozone, and the pro-austerity parties are working to quickly form a government. This was a celebration of rationalism - the idea of an extreme party taking charge in Greece was a concern from both economic and social angles. At the same time, the Greek outcome leads to a less decisive path forward. The European crisis will continue largely unchanged, with political parties moving slower than markets want, and slower than economics require.
What is more, the rally we experienced last week largely reflects the elimination of melt-down risk. We could continue to see prices edging higher in the near term, but the easy gains have been made. Equally, the sharp sell-off that many hoped for is unlikely to appear in the immediate future, and markets remain a challenge for all.
How to invest in this dynamic? Acknowledging that risks remain high, I am cautious on equities. The most benign outcome will see the US and Emerging Markets decoupling from Europe once more. In that case, holding high dividend and large global stocks continues to make sense: the US should continue to expand, China is in a stimulatory phase and Russian retail demand has remained high.
More specifically, the so-called “risk-on” currencies probably represent the best bet. The ruble has lost more than 6% against the euro since March, the Polish zloty nearly 5%. These economies are tied to Europe, but driven by the healthier parts of the single currency block and are subject to relatively vibrant internal demand. Of course, further panic in markets might cause these currencies to slide more, but the fundamental value is already there, and longer term these currencies (and their respective bond markets) look far more sustainable.
The world keeps turning – new markets are economically stable – but the markets have yet to learn the new tune. Even in today’s challenging and often intimidating climate, we are ready to help you find attractive solutions.
Best regards,
James
he world keeps turning. The markets again performed very well last week: the S&P 500 Index rose 1.3%, the Eurostoxx 50 rose 1.7% and Russia rose 3.6% (giving it nearly 10% upside in the last two weeks). Interestingly, oil lost another 0.8%, as OPEC failed to cut output at its regular meeting. Rather than being indisputably positive news, the market rally rather reflected expectations that the world’s central banks would pump money into the system if the results of the Greek election were negative.
As it happens, Greece voted to stay in the Eurozone, and the pro-austerity parties are working to quickly form a government. This was a celebration of rationalism - the idea of an extreme party taking charge in Greece was a concern from both economic and social angles. At the same time, the Greek outcome leads to a less decisive path forward. The European crisis will continue largely unchanged, with political parties moving slower than markets want, and slower than economics require.
What is more, the rally we experienced last week largely reflects the elimination of melt-down risk. We could continue to see prices edging higher in the near term, but the easy gains have been made. Equally, the sharp sell-off that many hoped for is unlikely to appear in the immediate future, and markets remain a challenge for all.
How to invest in this dynamic? Acknowledging that risks remain high, I am cautious on equities. The most benign outcome will see the US and Emerging Markets decoupling from Europe once more. In that case, holding high dividend and large global stocks continues to make sense: the US should continue to expand, China is in a stimulatory phase and Russian retail demand has remained high.
More specifically, the so-called “risk-on” currencies probably represent the best bet. The ruble has lost more than 6% against the euro since March, the Polish zloty nearly 5%. These economies are tied to Europe, but driven by the healthier parts of the single currency block and are subject to relatively vibrant internal demand. Of course, further panic in markets might cause these currencies to slide more, but the fundamental value is already there, and longer term these currencies (and their respective bond markets) look far more sustainable.
The world keeps turning – new markets are economically stable – but the markets have yet to learn the new tune. Even in today’s challenging and often intimidating climate, we are ready to help you find attractive solutions.
Best regards,
James
No comments:
Post a Comment