Brian Tora: In the thrall of Greek debt negotiators


Markets have continued to be influenced by the progress – or lack of it – over discussions on how Greece might find the cash to meet the next instalments due on its bailout repayments.

Some bad tempered exchanges between the negotiating parties saw shares slide, as the prospect of a Greek exit from the single currency zone became a reality. Eleventh hour helpful concessions from the Greeks then re-engendered hopes some sort of deal would be reached, leading to a bounce.

What has become clear is that markets much prefer the option of a deal allowing Greece to remain in the euro, even though its ejection would probably have little impact in the near term. It seems there is a premium rating attached to the status quo being maintained, so determining what the failure of the Greek debt talks might do to investor confidence is hard to assess. There are plenty of respected observers who state this would be the best outcome. The trouble is markets dislike uncertainty with a passion. Roll on any resolution.

Domestic markets meanwhile were able to take some heart from the agreed bid from Ferrero Rocher for chocolate manufacturer Thorntons. While many of us will be familiar with both sweet brands, the reality is that, at £112m, this particular takeover deal is hardly of earth shattering proportions. The recent sale of a Northern Ireland poultry business from one Brazilian owner to another dwarfs this transaction but then this was not a company listed on the stock market.

If Severn Trent falls under the hammer to a North American infrastructure group, as is rumoured, this will be of significant interest to investors, given the multi billion pound value attributed to this major domestic utility.

It seems markets remain in the thrall of Greek debt negotiators and corporate dealmakers – hardly the most stable of environments and one capable of changing investor sentiment overnight. At least bid activity keeps managers on their toes and investors interested.

Perhaps that is why we were able to emerge from May, that most capricious of months, relatively unscathed. With high summer upon us it seems too late to consider the so-called “sell in May” effect but it remains one of the most potent pieces of market lore. Of course, sentiment was undoubtedly given a boost by the unexpected outright victory for the Conservative party at the general election but it is hard to see what else might have changed for the better.

So we find ourselves with markets that are not outrageously expensive but hardly a steal either. There are plenty of geopolitical issues outstanding and not a few economic uncertainties around too. In other words, we have precisely the mix of variables that makes any call on markets as challenging as ever. What is needed is a resolution to one or more of the many outstanding issues that continue to drive sentiment in both directions. Perhaps then a proper trend can be established.

If we can take one message from all this, it is that reliable stock pickers are likely to remain in demand. When overall sentiment is as fragile as at present, the best course of action should be to ignore the many clouds hovering over markets and concentrate on those companies likely to prosper whatever the bigger picture. What is more, this scenario looks likely to remain for some time, given the way in which Europe could well dominate the life of this parliament.

Brian Tora is an associate with investment managers, JM Finn & Co.