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Brian Tora’s Investment View

The first day of trading in 2012 felt good. At 2.3 per cent up, the rise was the second-greatest for the first day of a year since the FTSE 100 index was established 28 years ago. Precedent suggests this could result in a positive outcome for the year as a whole, although the first trading day of 2011 was also positive but the index finished lower.

Germany’s Dax index rose by 3 per cent on January 2 – the fourthhighest gain in more than 50 years. Other European bourses and Wall Street also saw share prices rising, although momentum was swiftly lost.

The sun broke through due to better than expected economic data from the US. The ISM survey, equivalent to our purchasing managers index, came in ahead of forecasts, suggesting the recovery in US manufacturing is building. Add to this German unemployment hitting a 20-year low – the best since reunification – and buyers appeared to have solid support.

But we learned just how dire the employment situation in Spain had become. A quarter of those without a job in the euro zone reside in Spain. The contrast is clear. The euro is weaker than an independent Deutschmark would be but too strong for the struggling Spanish economy, which could use a less robust peseta.

These conflicting interests expose the problems likely to dog the eurozone. The chaos that would result from a break-up does not bear thinking about, yet those nations forced to endure savage austerity look condemned to years of dire economic conditions.

The US can look elsewhere for economic stimulus. Already, there is evidence of manufacturing jobs migrating back as wages rise in China and the renmimbi hardens against the dollar. There are even signs of an improvement in the US housing market.

In the UK, the combination of the Olympics and the Queen’s Diamond Jubilee will be of benefit but it will be a resolution of the European crisis that will determine how the year plays out and there is little sign of a concord. March could well be a crucial month as repayment of a significant amount of Greek debt falls due.

Meanwhile, just as the end of 2011 saw Brazil thrust the UK aside to become the world’s sixth-biggest economy, so 2012 was ushered in with the news that China has usurped our position as the second-biggestmarket for Bentley cars. It is a telling indication of the growing divide between the haves and have nots that Bentley enjoyed its second best annual sales ever in 2011. There might just be a message there for investors.

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



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