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Renewed fears for investors – and confirmation that the world is not ending!

Phew! So, the fact that it’s not the end of the world has been authenticated with a remarkable discovery a few days ago. It has been a popularly held belief that the Mayan calendar, from one of the great ancient civilisations, predicts the end of the world in December 2012. Last week, this prediction was refuted with the discovery of the earliest known Mayan calendar ever found, by archaeologists in a 1,000 year old house in Guatemala. This unearthed calendar shows a calendar spanning over 6,000 years and well past 2012. Well thank goodness for that!

At the same time, however, we are facing a repeat of the last two years, with a good start for the year in share markets being reversed with weakness before the middle of the year. This year’s highs see Australian shares down 5% and international shares down 8%.

The reason for these negative share market movements are driven by the usual suspect… that’s right, its Europe again. And what a soap opera it continues to be, with so many European countries going to election and bringing in new Governments over the last few months. As far as financial issues continuing, it’s not only Greece, but the Spaniards that have re-emerged in this episode of the European debt crisis. Furthermore, the Greeks are once again facing the threat of exiting the Euro. And whilst over 70% of Greeks want to remain in the Euro, they are still not willing to do the hard yards and simply accept the bailout deal.

With the threat of Greece leaving the Euro, investors have heightened concerns about the same occurring with other nations such as Spain and Portugal. Spain’s renewed issues come as Moody’s downgraded 16 Spanish banks along with news the Spanish Government is commencing an audit of the banking sector. Ultimately time will tell, and this is just my opinion, but I don’t think Greece will be forced out of the Euro as Chancellor Merkel and the European authorities will surely release some pressure of the austerity measures and ease monetary policy.

In other parts of the world there are mixed signals from China and the US. Although we are seeing stabilising business conditions in China, other indicators show some slowing. This could suggest that China’s GDP growth could drop to as low as 7% (compared to around 10% pa for at least the last 10 years). Although low by Chinese standards, this is still very strong growth by global measures and China does not have any of the debt issues of Europe and the US. In the US, after having a great improvement in employment numbers, the most recent figures show a bit of slowing. However, general business conditions still remain at a modest level; far better than last year.

Here at home, we have just had a big rate cut of 0.5% in May. And economists suggest there may be room to cut even further, even though domestic economic figures are on the improve. The recent Federal Budget announcements are unlikely to have any direct impact on our economic growth in the short-term and it will be some time before we understand the impact of the Carbon Tax. Commodity prices are the factor that will more likely have an impact on our resources sector, but my crystal ball is very hazy on these future prices!

Overall, there are certainly some renewed issues that need to sort themselves out. The uncertainty we are seeing, especially globally, is the reason for the apprehension by share market investors. What this means for us is that we can expect some continued volatility along with the current short term negative fluctuation in the share market. However, this current hiccup is by no means the same as the gyrations we saw in the last two years. Of course, the data doesn’t always tell the whole story and we need to stay focussed on our long term strategy rather than worrying about the latest headline that it could be the end of the world.

All in all, I think the Mayan calendar has it right… it is not the end of the world!

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