Tranquility in the Market, Happy Investors

The relative tranquility which has flowed this month of May is useful for the analysis of the general situation, in the same way that one can observe the bottoms of lakes and seas when the waters are not muddled. The prolongation of this situation favors the investor that is searching mainly for the protection of his portfolio’s value, aside from adventurous acts that imply different levels of risk.

What is observed is as follows: The United States continues its firm and modest recuperation from the post-Lehman Brothers 2008 crisis. Since 2011, it has come back to the levels of growth previous to that crisis. In that scenario, it is supposed that corporate shares will appreciate and will give dividends in a similar way as they have done throughout time. In this month, the Dow Jones, S & P 500 and Nasdaq went up 1%, 2% and 3%, respectively. And the yield of the bonds continued in the low side. There is no sign of any internal political situation that could generate any immediate unbalance. The Fed will continue the process of diminishing the purchase of Treasury bonds to liberate the economy of the distortions produced by the unnecessary extension of the stimulus policy.

A report from this month from the United Nations Specialized Department indicates that Latin America will grow at a slower than expected rate (GDP of 2.6% versus 3.5% previously calculated by the UN) mainly because of the weakening of Brazil, Argentina and Venezuela, who will suffer from the reduction in the Global demand of raw materials and because of the strong inflation suffered by Argentina and Venezuela. On the positive side, Mexico, Colombia, Peru and Bolivia, as well as a good portion of the Caribbean, will be better in 2014 than in 2013.

Facing the reality of the imminent termination of stimulus policies in the United States and the reduction of high levels of growth in China, the emerging economies must generate internal growth to substitute the capital influx coming from advanced economies. These are the conclusions of a forum of the European Central Bank gathered this month, as mentioned by the chief of Mexico’s Central Bank. The diminishing of liquidity injected by governments will elevate the cost of money and will make it go back to the better known markets of the first world. It is possible that the emissions of debt papers with fixed rates, public as well as privates, will have to offer higher rates to conserve the interest of world investors.

Europe continues being a more complex scenario. From Paris, the New York Times explains during the middle of the month that the Eurozone’s recuperation in general is going slower than expected and needed; the economy grew barely 0.2% on the first quarter and continues being 2% below the levels at the beginning of the crisis. Only Germany and France have returned to the growth levels before the crisis. The problem of the inequality of the recuperation persists. The north does it slowly but consistently, but the south stumbles along. Even though Spain has officially declared the recession was over after the fourth continuous quarter of positive growth, Italy, Portugal and Greece contracted again during this four month period.

There is positive news: industrial activity, investment and consumer confidence are increasing, as well as the price that the countries who emit sovereign bonds are receiving, but the European voters are sending messages that should sound alerts to those political elites that designed the Europe that returned from the ashes of World War II, united on the basis of democratic principles, departing from nationalisms and extremisms that razed it with warmongering and depression during a good part of the  twentieth century. This month’s elections for the European Parliament show important preferences towards extreme right and left tendencies, which have become strengthened around populist discourses. The advance of the French National Front and similar tendencies in Northern Europe is notorious, and high numbers of votes are in favor of the radical leftist tendencies of the “Podemos” Spanish movement and “Syriza” in Greece.

These turns in voter preference must lead to reflection on the part of the groups currently in power. It could be that the austerity measures suffered by the inhabitants of Southern Europe (taxes, low wages, reduction in social benefits) or the exacerbating of anti-immigrant feelings could turn into an Anti-Europe tendency in order to privilege nationalisms, under the belief that Germany and Northern Europe are unifying the continent for their benefit. If what was seen in the European Parliament elections is later confirmed in the internal parliamentary elections in each country, the stock markets will surely react with cautious or skeptical attitudes towards the future, with probable decreases in corporate shares, because there is the possibility that national policies contrary to Europe’s monetary stability and unity could be introduced. That has not happened until now. The main stock markets didn’t show any concern. There was an increase of 3% in Spain, a small increase in England, and a small decrease in Italy. The bond prices show moderate increase.

 

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