NEW buyers, please. One month down, 11 to go. It has been a nice January so far for most of the long equity brigade, with markets putting in a respectable performance. The problems are the same that have blighted the upside momentum for the past two years. Already I hear some of the smart money is coming off the table. Not to worry – it’s time for the retail investor to enter from stage left.
While the Germans have chipped in with a wunderbar 10.4 per cent return, UK blue chips have been a relative laggard, up only 2.9 per cent year-to-date. Even the French have found five per cent from somewhere.
But who’s actually going to buy the market from here? It’s a good question, given that a lot of the usual suspects aren’t really committing more money to the market. They’re actually thankful for the opportunity to lighten up a little at elevated levels. Pension funds are still in their own world of pain – and on a long-term equity reduction drive – and more active fund managers, thankful for the uptick, are apparently going into the end of month looking to take some profits. So that leaves the good old private punter in the usual role of being last one in, last one out.
That said, one manager pointed out to me it’s got nothing to do with European debt levels or bank liquidity if these markets go up or down from here. It’s just – purely and simply – about confidence. There are so many dreadful global economic fundamentals, but how many times can you sell the same stock on the back of this? Several times, it seems. But an Armageddon scenario is well understood now, which is why, for instance, it has been so tough to push the euro lower. If the market is short as a collective as much euro/dollar as it can be, then you end up with a scenario where one needs much more bad news than good to get it further down from here.
A lack of confidence is not just a European phenomenon. In the US, the fourth quarter turned in growth of near three per cent annualised in the run up to year end – and yet earlier in the week the Fed had told us interest rates were going nowhere for the best part of three years. Anyone else smell a rat?
This week will be trying for the nerves of the bulls with Greece at the epicentre again. I still think the Greeks are being sold a pup. What nonsense to suggest that, after all the haircuts, the Greeks will have a viable debt repayment strategy while still having 120 per cent debt to GDP by 2020. Yes, the Greeks got themselves in a mess but this deal stinks and is another boot into the long grass.
Steve Sedgwick is an anchor for CNBC
