News / Views

Investment Notes

Follow our regular updates to stay up-to-date with current financial planning and investment issues. We regularly publish press clippings, articles and thinkpieces that we think might be of interest to our clients.

Both we and markets were surprised by the turn of events concerning Greece over the weekend. Our central assumption had been that an agreement would be cobbled together as deadlines began to bite, and we didn’t expect the Greek government to call a referendum; the subsequent sharp fall in European stock markets shows that other investors had a similar view. The question now is whether the reaction in financial markets is simply the volatility that arises when unexpected events occur, or whether there is a risk of a permanent loss of capital. We are taking an optimistic stance, expecting company share prices to recover; we don’t believe that events in Greece will derail the economic recovery in Europe and the West, for the reasons set out in this note. Meanwhile, we are likely to see more tragic scenes from Athens on the television news, as the crisis impacts everyday life.

Despite the increasing concerns of a Greek default and the additional volatility this has brought to most world markets, we believe that there is more global bloom than gloom; this note explains why current portfolio allocations should be maintained with company shares and commercial property predominating over cash and bonds.

QE moving the Eurozone towards recovery

The ECB announces new policy measures to stimulate the economy

Following the bout of weakness in October, which we commented upon in our note entitled “Keep Calm and Keep Shares”, and the subsequent recovery, company share markets have experienced further volatility, as we expected in the second half of this year (see our 10 July 2014 note entitled “A Quietly Profitable First Half ”).

During the past four weeks, the FTSE 100 index of UK equities has reduced in value by 7.2% and the S&P 500 index of US equities has reduced in value by 5.5% in Dollars. Meanwhile, prices of government bonds have risen as investors reallocate to assets they consider safer.

Angela Merkel’s favourite set of facts about Europe are that it represents 7% of the world’s population, 25% of the world’s GDP and 50% of the world’s social spending.

The US policy of Quantitative Easing (“QE”) is due to end later this year. Growing uncertainty about the evolution of monetary policy as the economy strengthens is likely to contribute to increased market volatility.

Pages