Eurozone complacency prompts ‘over-exuberance’ in markets

Fund manager Ewan Thompson warns that eager investors have pushed market prices too high so far this year.

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by Chris Marshall on Jan 24, 2012 at 16:02

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Eurozone complacency prompts ‘over-exuberance’ in markets

It would be ‘unwise to aggressively chase markets’, Neptune’s Ewan Thompson says, warning of too much ‘exuberance’ in markets so far this year amid complacency about the health of the eurozone and US economies.

Such investors ‘have probably pushed markets on a little bit higher than they should have done’, said the asset management company’s head of emerging market equities.

Thompson's warning has been repeated by a growing number of investors and economists in recent days. So far this year the FTSE 100 is up 2.8%, the US S&P 500 is 4% higher and the MSCI emerging markets index is 8.3% higher.

The much-hyped US economy could prove disappointing; the underlying problems in Europe are not fixed; and hopes that the Chinese authorities will provide large-scale support to keep their economy growing are likely to be dashed, Thompson said on a conference call, when asked what the risks are for 2012. Instead, the Chinese Year of the Dragon will probably see tweaking of monetary policy in the world’s largest economy.

‘If anyone is expecting all of that… they could be a little disappointed,’ he warned.

As anecdotal evidence of this ‘exuberance’ Thompson cited a rush of money into the South Korean market, which was beaten up last year in line with other emerging markets as investors sought out more traditional safe havens. Some 40% of the money that was withdrawn from South Korea last year had already been shoved back in during the first weeks of 2012, Thompson said. Half of this had been invested in just two days, he added.

Thompson runs Neptune’s Emerging Markets fund, which last year struggled, falling 23.9%, worse than both the average fund in the sector and the MSCI emerging markets index, which dropped 19% and 17% respectively. ‘We feel slightly hard done by,’ he said, having had such a ‘grim year’ in spite of economic strength in the emerging world, in contrast to the weakness among developed economies where markets had suffered less.

Over three years Thompson’s fund has fared better, making 59%, slightly better than the average emerging market fund.

Despite his warning that investors have started 2012 too optimistically, Thompson still expects emerging markets to make gains this year.

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4 comments so far. Why not have your say?

Evidence, if it were needed, that being close to the Eurozone is no influence on understanding of the fundamentals of the issue is provided this week (yet again) by Jersey based Ashburton. In an on line briefing note they state:

“It has become increasingly clear that the European debt crisis is not an issue that will be resolved anytime soon and that the dominant theme continues to be politics standing in the way of substantial reform and viable long-term solutions.”

As to anyone with any understanding of the historical and current politics of the Eurozone the crises is caused by politics – politics and indeed EU politicians are the problem and not the solution. Any credible fund manger should understand that basic fact. There is no point in addressing the point with the company directly since past performance indicates that any communication with them will be ignored. Shame on Ashburton Ltd of Hillary Street St Helier for appalling research and its failure to understand the basics of European politics,

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The EU, from back when the Coal & Steel Community was begun, has always been a political project which dare not speak its name.

Its proponents were out to erase national differences in the name of a geographically derived conception of 'unity' that would allow the failing monarchies and liberal democracies of 1914 to revive and 'compete' with the new superpowers: the USA, Russia and Japan, Monnet and others such as the 'pan-Europa' school were preaching this defeatist message-- that the continent must huddle together under a benign cosmopolitan tyranny-- as early as the 1920s. They were shellshocked by the Great War, in particular determined to fudge up some supranational override of German and French leadership that would stop a fourth outbreak like 1815, 1870 and 1914.

Other once-fashionable notions of dissolving cultural, religious and patriotic differences into a beige synthetic sludge of Europeanism, such as the Nazis' New Order and the communists' international bolshevism ('the workers have no country'), have been discredited by their disastrous results when applied. But the Euro-federasts sail serenely on, drawing their expenses and drawing up their grand projets in Brussels and Strasbourg,

Here every fresh sign of bankruptcy and popular unrest among the peasantry is taken as a cue to move faster towards integration. We are lucky the Europhiles have no troops or nukes to impose their dreams on us; only incomprehensible treaties, or referenda where any wrong responses are nullified or ignored.

These high priests of nation-killing are utterly, literally, irresponsible. There is no voting them out, and there should be no treating with them: no dickering with them to win back trivial and transient advantages for Britain while the 'ever closer union' rolls on and we kid ourselves that we can be 'at the heart of Europe'.

Better off out. Delenda est Europa.

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Well said above.

What Ashburton and their fellow ignorant travellers in the finance industry do not understand – nor want to understand - is that the EU indeed a political project and that the Euro zone crisis is deliberately designed to “allow” greater political union. The extent of the crisis is much greater than the EU bods anticipated and will clearly result in the Euro’s failure sooner rather than later. Political intervention is the last thing that is needed to create a stable market. Over the past four months Ashburton have made numerous errors regarding the workings of the EU.

On many occasions I emailed Ashburton and also Lansons their PR consultants pointing out their misunderstandings; my communications were ignored so I now make my points publicly, not that it will any difference ignorancei s bliss.

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Peter Troy

Jan 25, 2012 at 15:31

Angela Merkel, according to Reuters, has rejected as "unfounded" stereotypes about a domineering, dogmatic Germany whose economic strength hinders growth in the rest of Europe, saying such clichés did not help the cause of European integration.

So what is she really worried about – the "unfounded" stereotypes, or that they did not help the cause of European integration?

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