Market Comment: Living in interesting times

There is a saying, purported to be an old Chinese curse (though no real evidence exists to give credibility to this), which goes “may you live in interesting times”

With a European Union leaders meeting taking place this week at which the unexpected rejection by the Greek people of the bailout deal will be the principal topic, it is hard to speculate on what might now happen. That Alexis Tspiras has won a powerful mandate is clear, but that will not make reaching an acceptable agreement any easier, despite his sacking of his controversial Finance Minister, presumably to make further negotiations easier.

The trouble is that the terms that were on offer – and rejected - have now expired and securing agreement from the other Eurozone nations to a new and less austere package will be a tough task. Moreover, the Greek banking system is close to collapse, making the near term economic picture for the country look particularly bleak. If Greece is forced out of the single currency zone, then in the short term it could be unpleasantly chaotic

But share and foreign exchange markets did not post the extreme reaction that many feared. True, we saw indices dip and the Euro surrender some ground, but overall there was less selling pressure than might have been expected. Given the turmoil in Chinese markets that must also impinge upon sentiment, the more measured approach of European investors appears little short of remarkable.

The prob lem in China seems to be that the authorities allowed shares to run away in a surge fuelled, presumably, by borrowed money, only to see a swift reversal of fortune that brought the Shanghai index down by 30% in less than a month. Why they allowed this state of affairs to develop is hard to assess, unless they were hoping to sell off state assets at premium prices. While they have stepped in to try to stabilise the situation, resulting in a modest recovery, confidence has suffered.

And we have the first proper Conservative budget in more than eighteen years. Much of the detail of those headline grabbing likely measures were leaked in advance and, while budgets are seldom the market moving events that Chancellors might expect them to be, there will be yet another set of issues for investors to take into account. We do, indeed, live in interesting times.

Brian Tora is an associate with investment managers, JM Finn & Co.

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