DIY Investor Magazine
/
2015 Issue
6
GREEK CRISIS CALMS AS WE ENTER THE SUMMER
LULL
Greece has been on the front pages daily, seemingly
for eons now, and the relationship between the Greek
government and the Eurozone leadership plumbed
new depths before finally an agreement of sorts
was reached. In summary, and borrowing a favourite
expression of Field Marshal Montgomery, the situation
is “grossly untidy”.
Politically the situation reflects poorly on the key
players on both sides, potentially with long-term
consequences. Economically and financially any
potential collateral damage is considered containable,
even if it won’t feel that way to the Greeks living
through it. The Greek situation is clearly important and
its political impact may be long-lasting but it’s easy to
overlook the fact that in the meantime the rest of the
world is still functioning normally!
There has been positive evidence that economic
recovery in the US and the UK is gathering pace. In the
UK, the unemployment rate is 5.6% from 6.5% a year
ago and wages are growing faster than the inflation
rate (which remains at zero). In Japan, tourist numbers
are booming with 20m visitors likely to visit the country
this year, already achieving the government’s target for
2020, the Tokyo Olympic year, on the back of which
hotel room rates are rising.
This is precisely what the Japanese government is
trying to achieve, attempting to stimulate 2% inflation
and to create an environment in which consumers want
to spend.
SUMMER BREEZE
THE BUBBLE THAT’S POPPING?
China, on the other hand continues to be sluggish and
on our visit to Asia at the beginning of June, investors
in that region were much more concerned about the
broader impact of the Chinese economic slowdown
than they were about what was happening with Greece.
We remain sceptical of the official Chinese GDP data
which shows the economy growing at 7%, painting a
rosier picture than other data would suggest is actually
the case.
Against this economic deceleration, Chinese equity
markets have been extraordinarily buoyant. Retail
investors have been switching from speculating on
property to buying shares and frequently borrowing
to do so. We see this as a bubble that is now in the
process of ‘popping’.
FIXED INTEREST VIEW
When it comes to fixed interest (bonds), we have
generally taken a negative view on Western sovereign
bonds for some time, as we have been of the belief that
the yields (or income) on offer have been unattractive
and made the bonds riskier as a result.
This view was correct in 2013 but wrong in 2014 as
the yields on these bonds fell and their prices rose
commensurately. However, we have not changed our
stance, if anything our views have hardened, as these
assets have ascended to prices where we consider that
only prolonged extremely low inflation or deflation
- where there is a general decline in prices, would
warrant a purchase.
Of comparatively more interest are corporate bonds
where higher yields have been on offer. In the current
environment where the world’s central banks have
made it is easier for companies to borrow money, we
see little likelihood that the number of bond issuers
unable to repay their debts will escalate markedly when
credit is so freely available.
Jupiter Asset Management’s, John Chatfeild Roberts,
ponders the global economic and political climate
as he seeks to keep the wind in the sails of his
Merlin Multi Manager Fund range.
Source: Office of National Statistics, Labour Market Statistics July 2015
