The EuroZone like Japan has languished as it struggles with national reform and regional integration. Integrating regions with entrenched regional identities was always going to be difficult, particularly when these countries have very different identities. My forecast is that the EuroZone is going to suffer a breakup based on values. I can see several blocks, namely:
- Northern countries: Germany, France, Netherlands, Sweden, Austria, Finland
- Southern EU countries: Spain, Portugal, Italy, Greece
- EU Tigers: Poland, Czech Republic, Hungary need not separate, as they might closely allign themselves with the Northern EU countries.
These countries can still integrate at a certain level such as trade tariffs, but they will not integrate on currency & interest rate policy or public spending priorities. A the moment, the saving countries (France & Germany) dont need higher interest rates, but the other countries do. EU monetary growth is 4x faster than economic growth - thus monetary policy is too easy.
Investment Strategy
If you are investing for the long term, you still need an investment strategy. Dont be fooled by the rhetoric of fund managers. The reason they advise you to 'buy & hold' is because they dont want to compete with you in sell-offs. Markets and industrial sectors are cyclical, so they demand trading to get the best returns. Fund managers actually cant hope to match the performance of small investors (if you are half good) because they have to manage huge amounts of funds and charge you a fee besides.
MY ADVICE is (i) look at a range of market indices and decide upon what level of correction would give you the justification you need to get in & out of the market. It might be a 5-10% retracement or a break of trend. (ii) Diversify if you dont have an intimate knowledge of the company or management. More than 30% in one company is aggressive.
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