Expect a roller-coaster of a time with European equities
AFTER a decent year, European equities had a volatile and underwhelming time of things last month. Looking forward, it is a tale of two futures: either strong international companies profiting on the back of emerging market growth, or national divisions bringing an end to monetary union. Either way, there will be opportunities for spread betters to profit from the volatility.
FORTUNE FAVOURS THE BRAVE
The slow-motion car crash of the Eurozone – caused by fiscally irresponsible politicians and an almighty binge on cheap money and credit – is looking increasingly messy. On the back of the Greek tragedy, the FTSE Euro 100 dropped 2.85 per cent in May, though is up 13.69 per cent on the year. Stephen Barber of Selftrade says that even though “the Eurozone sovereign debt crisis is causing headaches for some investors,” this presents “opportunities for those with a stronger constitution. For those seeking volatility and speculative opportunities, forex, bonds and good old equities are in focus.”
FOR THE OPTIMISTS
According to Stephen Macklow-Smith, manager of the JPMorgan European Investment Trust, European equities look good. Macklow-Smith says that although Portuguese and Greek debt are dominating the news, “Europe has long been recognised as a home to world-leading companies, and demand for their products is strong both in emerging markets and developed markets alike.” Macklow-Smith thinks that with the climate of low interest rates likely to persist, equities should continue to benefit.
NOT SO UNTHINKABLE
However, it is hard to ignore the debt crisis. Without a straightforward mechanism for leaving the euro, a collapse of the currency could be a disaster for equities. Last year, ING released a report, Quantifying the Unthinkable, in which the authors contemplated a euro collapse. Their conclusion was stark: “The EMU break up will lead to a strong stock market correction,” with the periphery nations hit the hardest. Of course, a Eurozone collapse is not inevitable, but with demagoguery becoming the politics of choice, a political solution is looking increasingly difficult.
EVERY CLOUD
As Malcolm Pryor of www.spreadbettingcentral.co.uk puts it, the great thing about spread betting is “that you can take a position long or short on large cap stocks in most major markets.”
Angus Campbell of London Capital Group says that currently “most of the bad news is priced in, but if things do get much worse in the respect of contagion, there could be more opportunities to make money from shorting European stocks.” It is not yet clear how the Eurozone crisis will play out, but traders should be ready for the worst and hold on tight.