The days of risk on risk off which haunted last year’s politically-charged markets are likely to return during the build up to February’s debt ceiling negotiations. In the first few days of the year, however, markets are up across the board and the winners so far in 2013 replicate those in 2012. Europe remains the most obvious way to add risk to a portfolio and the best performing developed market of the year is Greece – which has now doubled from its nadir but remains 80% down from five years ago.
Peripheral Europe continues to make the running with Italian, Portuguese and Spanish shares amongst the best performers too. Much of this has to do with geography. Despite the wires seeming to carry no hope of a deal, the US rallied hard into New Year’s eve after Asia and Europe had shut. That suggests investors are becoming more confident that politicians are able to make the right choices when it matters. Perhaps that is why the current deal, despite lacking much substance, has been so well received by the markets: we have now seen the Republican’s surrender their fiscal demands for two New Years in a row. The Fed may have silenced the bond vigilantes (the bond market used to punish reckless fiscal or monetary policies) but it seems that Congress remains at the mercy of equity vigilantes. This week's Investment Perspective in full >
Head of Portfolio Strategy