Gaeia's Market Insight - September 2012

For anyone waking up from a yearlong sleep (or even two, for that matter), the investment world might seem little changed. The Eurozone is still in crisis, Greece can’t pay its bills, banks are the scourge of the world and the economic outlook is probably best described as “mixed”. (By the way, that’s generally code for not looking too hot). All this is still the same, despite the finest Pan-European minds holding over 20 emergency summits in the last 20 months or so. All talk, and no action. At various points, we have learnt that Ireland is not Greece, Portugal is not Ireland, Spain is neither Portugal nor Ireland nor Greece, and that Italy is now most definitely not bunga bunga. The solidity of the European Monetary Union has long polarised opinion; that its first test should coincide with one of the most epic financial system collapses in history is somewhat unfortunate – but such is life. Of course, much of the Western world has had to contend with serious problems in recent years so the Eurozone is by no means alone. All of which is well and good, but what does it mean for your money? The deteriorating economic picture almost certainly has further to run, so caution needs to be exercised around the valuations of equities which reflect a more optimistic outlook for profits than is likely to materialise. Fixed Interest – traditionally a safer haven in times of stress – has issues of its own, with sovereign debt yields in several markets now at record lows and well below actual inflation rates. The price of investment “safety” has seemingly never been higher. Grand promises of “unlimited” intervention by the European Central Bank improved sentiment. All Spain has to do is request a bailout and allow outsiders to monitor its policies to make sure the politicians keep their word. In other news, appropriately enough for the time of year, turkeys have resoundingly voted for Christmas. Renewable energy has been in the headlines at various points given apparent pressure to scale back industry subsidies, even if seemingly incompatible with future commitments to reduce carbon emissions and to rebalance the energy mix. Equity performance in the sector has been poor, to say the least. So what should an environmentally-conscious investor think or do? The pressure is unlikely to ease anytime soon, as the spate of solar-related business bankruptcies in Germany and America suggests. Excess capacity and unprofitable prices, both resulting from Chinese competition, seem to be the culprits – with no change on the horizon. At the same time, the pressure on Western government budgets means that the level of industry support available is far less than in the boom times. So for the moment, the outlook is still tough; but when the overcapacity begins to be cleared, pricing power should return and the inevitable demand for cleaner technologies should again warrant serious investment consideration.

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