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Euro notes

There is nothing like spending time gazing out over the ocean to put a little perspective back into life. This is precisely what I have been doing in the past few days. Little has interrupted my contemplation. I admit I did watch the royal wedding or at least some of it. And it was difficult to miss the remarkable events in Pakistan. But investment issues have seemed very remote.

This is probably just as well, given the continuing economic problems facing the developed world. Shares appeared locked into a sideways momentum while investors try to gauge the effects of quantitative easing coming to an end.

Little news has been capable of buoying markets while I have been away. Even the raid on Bin Laden’s hideout was greeted in a muted fashion.

But evidence of the turmoil visited upon overborrowed nations has been highly visible, even to tourists like me.

In Portugal, from where I am writing, the news that a bailout deal had been reached hardly brought celebrating crowds out on to the streets. Despite claims that the terms were more favourable than those provided for Greece and Ireland, it is clear that recession and austerity will remain for the foreseeable future.
State assets are to be sold off and investment programmes curtailed. Little wonder that the prevailing mood is one of gloom.

There is little doubt that the tourist trade has been suffering. The problem for we Brits is that the euro just appears too expensive. While the Germans and the French are not so encumbered, the fact is that a country such as Portugal – or Greece for that matter – is no longer the cheap option it once was. And devaluing the currency to bring back competitiveness has been removed as an option.

The situation out here was put into some sort of context while talking to a restaurant worker. Twenty-eight years old and unmarried, his monthly salary is 500 euros. Unsurpris-ingly, he lives with his parents and relies on other work, plus tips (also down due to tougher times, I was told) to deliver sufficient income to get by on. His will not be an unusual situation, I felt, so the recovery looks likely to be slow in the West.

Meanwhile, back at home, I see we avoided the doubledip recession – just. Perhaps I should also qualify that by adding – for now. There is no guarantee that we will not slip back into negative territory as belt-tightening continues. With industrial unrest rising further up the agenda, I am increasingly of the view that inflation above trend is now inevitable for some time. With a strong corporate sector, this suggests that it is no time to be out of the market.

But shares have struggled to make headway this year. The 6,000 level on the FTSE 100 index has been gained and lost more times than I care to think about since the end of last year. Do not forget it nearly clambered over 7,000 more than 11 years ago. At the moment, about the only encouragement UK equity investors can take is that the returns on cash remain skimpy, to say the least.

May can be a tricky month for investors. This year looks likely to be no exception, with the possibility of higher interest rates at home increa-sing and mixed signals coming out of the US. With more than a week of my sojourn abroad remaining, there will be plenty of time to reflect on the likely fortunes of investment assets. In the meantime, I think I will just reach for the suntan cream and another beer.

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


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