I guess this
month’s Eurozone update rolls in in a relatively timely manner. With tensions
building around the globe and the economic scene at an utter unrest, the global
markets have pretty much gone on a strike! I guess it’s a good thing that the government
has no prerogative to ban such strikes… or maybe they do and they are just
checking if it is constitutional… The entertainment just seems to be in the
headlines these days… Now, to more pressing matters…
Germany’s recent attempt at auctioning its bonds (or bunds as they
call it) was nothing but disastrous. Unable to auction off what it had targeted
(35%) had inevitably proven a case and point on the global stance towards the
Eurozone’s recovery. Germany, the strongest economy of the region was rather
perplexed of its failure to lure finance towards its “appealing” 10-year bunds
which were aimed at giving approximately 2%. But Germany’s failure was none of
its own. With the recent downgrade of Portugal’s and Hungary’s bonds to “junk”
bond status, the crawl towards the end of the tunnel, to see just a shimmer of
light for the Eurozone, is bordering hopelessness.
Most of the EU strongholds have already started showing signs of
distress. UK, with its daily payout of
£50 million towards the eurozone’s recovery has made the country to finally
feel the pinch. With France, Finland, the Netherlands and Austria having to pay
more for their bonds than just a few months ago, the risk within the region is
pretty much spiraling out of control. It is for these collective reasons that
Germany has not been successful in reaching its target. But that’s not all.
There are many layers of icing on this cake.
Fitch Ratings has recently issued a warning of a possible downgrade
of France’s AAA bonds if there were to be sharper downturns, which trust me, is
VERY likely. Downturns have been happening all over Europe. It’s like the
indices got sick of the eurozone volatility and decided to throw up all over
the region. (Yup, it’s that messy!) To put it in numbers, the FTSE 100 ( the
share index of the 100 most capitalized UK companies listed on the London Stock
Exchange) had recorded losses amounting
to £ 104 billion in just 8 days. Italy, also one of the larger economic
contributors or the region, with bond issuances more than that of Greece, Spain
and Portugal combined, is on the verge blowing the horn. With more
uncertainties looming around the region, it is hard to say what would save the
eurozone from this predicament. Trust
me, Angela Merkel (the German Chancellor) is not the only one having her hands
on her forehead.
So how is this affecting asia? Well, Japan is not in the best of
shape as it is already showing signs of a downgrading of its bonds. However,
Fitch Ratings (the guys who have been on the bond downgrading spree) have
stated that, “the impact of the Eurozone debt crisis should “manageable” due to
an increase in regional trade and greater reliance on regional banks”. But this
statement was based especially due to the increase in economic activity in
China, India and Indonesia. So, when it comes to investing, look into such
markets as they are bound to perform in the coming years.
By,
Ashveen Chakravarthy
Sekaran(Nov 26th, 2011)
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