2012 was a Good Year for the Stock Markets
For all the apocalyptic news, the stock markets have done rather nicely.
The weekend has seen the death of the technocrat government in Italy. Having said that, in reality this will probably not mean a great deal as the architect of the demise, the great survivor, Silvio Berlusconi, is not expected to do particularly well in the ensuing elections.
Whichever party comes to power will make little difference as they will, in all probability, have to follow the road already mapped out by Mario Monti's administration or fall foul of the ultimate Eurozone paymasters (Germany). Nevertheless, the Italy 40 index has dropped over 3% in response to the news.
That said, there is almost a sense of fatalism about international events at the moment. Ever increasing sums are being committed to maintain the status quo. At the same time, economies are stagnating, and in many cases, drifting lower.
This almost certainly ensures that the financial well, to which the weakened states keep returning, will have to be dug even deeper in 2013, 2014 and 2015.
Whilst we all sit back and think that things are tough in the UK, a glance over the water both West and East shows how close we are to having to endure real pain.
Ireland's austerity regime continues unabated. Lest we forget, Ireland actually cut all state employee pay by between 10 and 15%, raised taxes on virtually everything you can think of and made real cuts to the budget (not the pathetic “reductions in the pace of the growth in expenditure” put in place by the UK coalition).
Much of this is a game of smoke and mirrors.
At the moment, the UK government enjoys the support of the international investment market, even down to the vast purchases of London real estate by the world's super rich. But such support can quickly evaporate and the UK's finances are not in such a state that this is a particularly pleasant prospect.
Our politicians, broadcasters and members of the forth estate continue to hammer away at the very people who are critical to dragging the good ship Great Britain out of the mire. They are forever trying to concentrate the minds of the electorate on the hatred of the financial sector and wealth creators.
While the UK retains the status of the financial centre of Europe we can perhaps sit reasonably comfortably. However, the rising volume of frustrated words from bankers over the levels of regulation and capital requirement are still being ignored.
More and more Treasury operations are shifting east as senior staff move to where they are appreciated. It is worrying that we might be getting to a critical tipping point where liquidity and expertise (both financial and legal) build to such a point in Hong Kong/Singapore that business naturally goes there.
As we approach the Christmas trading period it is getting harder and harder to work out whether this is a seasonal rally or whether we are merely taking back what was lost in the first half of November.
The FTSE 100 index
is floating around the 5900 level which has proved something of a high watermark this year. Financial Spreads clients have gotten used to selling anything above here in anticipation of buying it back cheaper later on. And so far, this strategy seems to be playing out once again.
Theoretically the returns on equities look almost too good versus asset returns elsewhere i.e. bonds, property and commodities.
Longer-term investors have been picking up positions throughout 2012 but not in size that is having a massive material impact in the UK. Although investors are probably looking back on the year with something approaching satisfaction.
The FTSE 100 is up around 6%, and with a 4% dividend yield, fund managers are generally looking comfortable. Of course players of the DAX (remember the euro woes) are smiling even more widely, the German stock market index
is up over 27%. The S&P 500 has also done nicely, exceeding 12% for its backers.
In fact, for all of the apocalyptic news throughout the year, in general, equity markets have done very nicely indeed. Even the Greek stock market is up over 25%.
The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced.
By Simon Denham, 10 December 2012