When will it end?

October 3, 2017

The second longest global recovery in markets post war has been prosperous for investors and savers alike since the banking crisis of 2008. 2 small corrections since this event (The Eurozone crisis and the “perceived” China slowdown in January of last year) have resulted in a value opportunity and markets have since recovered. Geopolitical events such as Trump and Brexit could have spooked markets into a sell off but investors remain confident that the underlying economy will continue to grow and earnings forecasts will finally come through.

BUT…

As we all know, all good things must come to an end. It is an inevitable consequence of economics that the business cycle must initially slow and subsequently reverse. But what will it take for this to happen?

Valuations are stretched, volatility is low and the cycle is at its most latter stage. But what will be the catalyst for this turn?

Although I would be silly to predict the timing of such an event there are certain risks out there…Italy being one of them.

Italy – A potential spark for another Eurozone Crisis

Both political and economic uncertainty could escalate over the course of 2017, a huge debt burden and a fragile banking system could we believe, lead to suggestions that the Eurozone is facing the same problems it did in 2015 with Greece. This is, of course the worst case scenario but it is by no means out of the question. Many commentators during the Greek Crisis believed that the Eurozone is a “failed” project, as the contrast in different sovereign states economically is too vast. So what has changed since then? Is it not a question of when rather than if we see a change in the way the EEA operates or even a full blown break-up of the EU. Italy could put a fresh spotlight on the area as a whole in the coming months.

 

Louis Greening

Technical Investment Specialist