While here in the UK, people last week were shivering in sub-zero temperatures, I took the opportunity to visit Portugal – one of the Pig countries in such disarray at present. This is not to demonstrate how good my travel timing can be, so far as the weather is concerned – although I confess to a gentle smirk on my face for much of my time abroad – but rather to report back on what it feels like to be under the cosh from the ECB and the IMF. In a word – unpleasant.
Having been a regular visitor to the Algarve for some years, the change, which admittedly had been gradual, now appears stark indeed. The number of businesses that had closed looked to be steadily rising, bars and restaurants were empty but most dramatic of all was the fact that everything seemed so expensive. Portugal’s decision to raise their VAT rate to 23 per cent was roundly blamed although the strength of the euro cannot have helped.
The effect seemed to be to drive people to batten down the hatches and take on extra jobs if at all possible. I met with lawyers, bankers estate agent owners and plenty of small business people – both Portuguese and of English origin – and the story was remarkably similar.
Somehow, they were determined to get by but they were not expecting an easy ride.
Apparently, the government had cancelled two public holidays in order to demonstrate that a will existed to trade their way out of their over-indebted situation. And, like Greece, they accepted that exiting the single-currency zone in Europe was not an option. Pain would be felt for some time but by and large I found a stoical attitude to their predicament.
Contrast this with Greece, where the parliamentary vote on implementing further austerity measures was accompanied by rioting in the streets.
The good news, of course, is that the vote was passed, albeit with opposition, resulting in a number of politicians being expelled from their parties. But the coalition there recognises that the straightened circumstances in which they were forced to exist at present would be far less unpleasant than a disorderly default and possible ejection from the eurozone.
So another hurdle has been crossed and markets continued the better tone established at the start of the year. The FTSE 100 index is not that far from the 12-month high and has now risen by 15 per cent in a few short weeks. Maintaining this trend will depend a great deal on the ability of European nations to continue to muddle through as nobody really knows what the final consequences of a break-up of the eurozone might entail.
Interestingly, I was talking recently with the editor of a newsletter which aims to use momentum techniques to construct and maintain portfolios of collective investments.
The system employed seeks to reduce volatility and deliver results that, while probably failing to match the performance of a raging bull market, nevertheless limit the downside during difficult periods. Over the longer term, they expect to beat market averages.
Despite taking a rather bleak approach to fund selection for much of last year, early in the current year, their signals encouraged them to add risk and take a more aggressive stance. So far it was paying off, although the editor confessed to feeling nervous when he read of buildings being set alight in Athens.
But he was sticking to his system. I hope the computer algorithms he employs make more sense of what is going on than the people in the streets of countries enduring a winter of austerity.
Brian Tora is an associate with investment managers, JM Finn & Co