Market Viewpoints

Greece could be nearing its own “Lehman moment.” Progress in negotiations with its creditors has been slow around such issues as pension and labour market reforms, the VAT increase, the privatization program as well as the 2015 primary budget surplus. For Greece, covering the primary budget target to make the current repayment schedule meaningful, will become increasingly difficult from mid-May onward. Greece is running on empty and the current level of Greek Credit Default Spreads indicates a 90% probability of Greece defaulting on its debt within a year. However, a political consensus to effectively eject Greece from the Euro is yet to form. On-going Quantitative Easing by the European Central Bank, the Bank of Japan as well as the reluctance of the US Federal Reserve to raise interest rates too soon, has meant that the cyclical momentum for developed market equities is still in place. The Eurozone has seen a good run of better than expected economic data these past weeks and there is a strong likelihood that the Q1 GDP report could register annualized growth of +2-3%. As for Emerging Markets, a repeat of “taper tantrum” is generally viewed as unlikely, given that the path of a US rate rise (when it comes), will be slow and one of gradual increases. The UK election looks like being the tightest general election for decades. With all the party manifestos published and TV debates completed, opinion polls suggest none of the parties will win the upcoming election. The two biggest parties— the Conservative party and the Labour party— are neck-and-neck in opinion polls, yet both are far from securing an overall majority. Prime Minister David Cameron recently said he would not seek a third term. If forecasts are to be believed, he will be lucky to serve a second one. Based on the current projections, an arrangement between Labour and the Scottish Nationalist Party is the most likely combination – adding 280 labour seats to the 50 seats of the Scottish Nationalists, which produces a House of Commons majority. Will it be Prime Minister Ed Miliband and Deputy Prime Minister Alex Salmond? Scary thought.

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