MANAGING DIRECTOR, ARTEMIS
SO THE $1 trillion European bailout just isn’t working. So ein Mist, what a dung-heap, mutters German Chancellor Merkel, lugubriously. But investors know that Europe has long excelled at self-delusion. For example, in 1929 somehow the French convinced themselves that the Nazis could be kept out by a wall.
As a result, between 1929 and 1935 France blew over 5bn francs on as great a folly as the world has ever known: the Maginot Line. In theory, it made France’s eastern frontier impenetrable. In practice, it was a stupendous endeavour of utter inanity: 22 large fortresses, 50 Alpine forts, 401 casements, 100 kilometres of tunnels and several gaping holes – known as Saarland, Switzerland and Belgium. Investors are simply peering through the huge fudge of further debt, largely designed in any case to protect French and German banks, rather than PIIGS’ bonds. The politicians’ response? As usual, ban something. Add in fears about a faltering recovery in the US and/or a bubble in China, and markets are proving more like the resumed trial of Malaysia’s opposition leader Anwar Ibrahim on charges of sodomy: less than tolerant. Over $5 trillion has come off global market cap so far this month.
But there are grounds to be positive. UK non-financial companies are holding record amounts of cash: some £140bn, or around 11 per cent of total UK market capitalisation. Add weaker sterling to that, and you get the perfect environment for mergers and acquisitions activity. Meanwhile, we note that 30 per cent of European stocks have a yield above that of their corporate bond(s). That same number was 5 per cent three years ago. We don’t know, of course, whether or not Greece will continue to export contagion, just as 2,500 years ago it introduced tragedy to the world. We too remember Keynes’ dictum that markets can remain irrational for longer than you can remain solvent. But what we do know is that many stocks are offering compelling value.