Tuesday, 9 April 2013

Fasten your seatbelts


The effects of climate change, it appears, might not just be restricted to the disappearance of spring and the unseasonably cold weather. A study by scientists from the University of East Anglia, reported the FT today, indicates that one of the results of global warming could be an increase in turbulence in the jet stream, adversely affecting transatlantic travel. Flights could be subject to a dramatic increase in the strength of bumpiness, forcing airlines to reroute flights which could, in turn aggravate delays, increase fuel usage and ultimately increase airfares.

Investors, too, could be forgiven for fastening their seatbelts at the moment. Increasingly random acts and statements from the administration in North Korea (if, indeed, administration is the right word for the chaotic state of the country) have caused investors to pause for breath. It seems inconceivable that the situation could deteriorate into a nuclear conflict – after all, fallout is no respecter of borders and, on this basis, the Chinese are unlikely to view the prospect of nuclear weapon use on the Korean peninsular positively. As one of the key long term supporters of the North Korean regime, both economically and politically, their opinion is still likely to carry some weight in Pyongyang.

In Europe, the collapse of the Cypriot banking system continues to cast a shadow across the region. Combined with an adverse ruling from the constitutional court in Lisbon on the legality of various austerity measures, political stalemate in Italy and a political crisis in France over secret bank accounts, the effect on markets has been to give back some of the strong gains seen since the start of the year.

However, it is worth pointing out that equity markets do not go up in straight lines. Invariably, there are periods of consolidation while markets digest information before they move again. Interest rates in the UK seem most unlikely to move for the foreseeable future and may fall further in the eurozone. Some weak employment figures notwithstanding, the US economy still looks in a good position to improve as my colleague, Guy Foster, has pointed out. The Japanese government is making determined efforts to revitalise their economy and, while the jury remains out on the ultimate success of their strategy, this is still a positive for global growth.

So, while we may be entering a period of some turbulence, investors would do well to concentrate on the horizon, albeit that the “Fasten Seatbelts” sign may be lit for the time being.



Rob Burgeman
Divisional Director


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