Last week saw Spain enter into the firing line. Markets were not amused. The immediate cause for concern was the state of the Spanish banking industry, which needs billions of euros to shore it up. But borrowing costs and a positive flood of money leaving the country added to the woes experienced by a nation generally considered to be too big to fail. Greece, for once, was consigned to the shadows.
It all brought to an end a rather unsatisfactory May. The FTSE 100 share index shed 7 per cent during the month – interestingly, a similar pullback to that experienced last August when European sovereign debt issues were also at the forefront of investors’ minds.
Once again, it was the uncertainty that caused the upset. Here we are nearly a year on and there are no signs that we are even close to a proper solution for the embattled eurozone nations.
Our market moved sideways overall during this turmoil of last week but the extent to which the euro is being abandoned – at least in certain areas – must surely demand more positive action from European politicians.
Even the head of the European Central Bank called for governments to get a grip of the situation. Europe’s leaders appear to be in a state of paralysis right now. The question is, can they actually do anything?
Many investment professionals think not. Neil Woodford pointed to the lack of ability for politicians to influence economic growth in the current climate.
Other senior managers have reacted with gloom to the continuing uncertainty. Yet one leading investment bank put out a paper recently putting forward their arguments for believing that Greece would remain in the single European currency zone. Oh well, it takes two to make a market.
There is a joke doing the rounds in bond markets. Presently, it seems, there are two ways of tackling the crisis in the debt-ridden countries using the euro. One is to find a solution that works. The second option is to adopt an approach acceptable to the Germans.
And there’s the rub. Germany appears determined to punish the transgressors despite a growing tide of opinion that austerity will militate against the economic growth needed to restore Europe’s fortunes. All very depressing.
And very depressing it is too that any commentary on markets is inevitably drawn back to the travails in Europe.
Elsewhere, news is mixed but by no means universally bad. The news that a number of management groups are either launching new investment trusts or issuing shares in existing ones demonstrates that an appetite exists for the world’s biggest stockmarket and neighbouring Canada. At least over there, signs that the economic corner has been turned are growing.
The emerging world is sending out contradictory signals, though. Brazil appears to be powering down despite having overtaken the UK in economic importance. Concerns remain that China’s growth will continue to moderate and there are worries that their overheated property market will at some stage implode. But it still looks cheerier than in poor old Europe.
Back home, the coalition Government appears to be perfecting the art of the threepoint turn while those who take it on themselves to forecast economic trends are ratcheting back expectations.
What is a poor investor to do? There is a lack of clarity whichever way you turn. That increasing value is appearing in many equity markets is poor comfort if shares take a tumble on the latest eurozone shenanigans. But if the euro is to survive, something – probably the Germans – has to give. If it happens, it will be too late to buy.
Brian Tora is an associate with investment managers JM Finn & Co