Investment Newsletter May 2012
Acropolis Now? After a strong rally over the past 6 months, volatility has once again returned to equity markets. After hitting over 5,960 in mid-March, the FTSE 100 has slipped back to below 5,400 as I write (the morning of 16 May 2012)
Greek Default? The market falls have been caused in the main by renewed turmoil in Europe. Elections in France and Greece could mean a move away from the austerity packages previously agreed with the European Union. Once again, political uncertainty is leading to market uncertainty. Whilst the two traditional main parties in Greece have vowed to stand by the austerity measures, between them they do not have enough seats to form a coalition. The far left anti-austerity Syriza party gained significant support but again don’t have enough seats to form a government. New elections are likely to be held in early June, and opinion polls suggest that Syriza could gain the most seats (though again, not a majority). If Syriza gain power then they will likely renege on previously agreed spending cuts. This will probably mean that they will not receive bailout funds, will default on their debts and leave the Euro. As we have always said, Greece defaulting and leaving the Euro should not cause massive problems in itself (except for the Greeks) due to the small size of their economy. The danger has always been the knock on effect on both the banking system, and then on other peripheral nations like Portugal. Much has been done in the past 6 months or so to shore up the banks and to put in place “firewalls� to stop contagion. There is debate about the size of the European bailout funds and, whilst it may deal with Greece, it is not large enough to also deal with issues in Portugal, Spain and Italy as well.
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