May 7, 2012
Political risk continues to dominate the conversation in the EU, with the Greek and French elections taking place this past weekend. The Greek vote resulted in a fracturing of large party support, making the prospect of a continued march toward austerity goals required by the IMF and the EU for continued funding less likely. What would happen if the goals are missed is anyone’s guess at this point, but a further bond default, or even an exit from the euro, would not be a shock. Both of these outcomes, however, would be months or more away. Francois Hollande cemented a victory over French president, Nicolas Sarkozy, and will be meeting with German Chancellor Merkel in a few days to review his positions regarding France’s adherence to the recently agreed fiscal pact.
Economic activity continues a slowing trend in the EU, and the UK has entered a technical recession. The depth and length of this slowdown will be dictated at least partly on progress toward a fiscal retrenchment that markets can live with – enough to lessen sovereign debt risks, but with a light enough touch to allow some growth to begin. The ECB still holds some cards to create a background for this to occur, with room to cut rates and/or restart the market purchase of bank-held securities. A lot of the bank financing cash doled out earlier in the year remains parked in deposits at the ECB. The head of the EU commission has called for an informal “growth conference” in June that would precede an already scheduled EU gathering.
Meanwhile, economic conditions in Asia are relatively better, with economic growth continuing, and concern about a China slowdown abating somewhat. Reconstruction cash is finally being spent in Japan, and there is some hope that the persistent deflation that has dogged consumer markets may be evaporating.
After the Argentine appropriation of the oil company YPF from Spanish based Repsol, Bolivia has decided that the local operation of Red Electra, which owns Spain’s electricity grid, is also fair game. Latin America is splitting into two camps, one populated by countries wanted to become fully developed economies and the other following in Venezuelan president, Hugo Chavez’s, footsteps. The message is clear for the Chavista strategy – don’t invest here, because if you are successful, it’s really ours.
Senior Vice President, Director of International Investments
Huntington International Equity Fund Manager
International investing involves special risks including currency risk, increased volatility of foreign securities, political risks, and differences in auditing and other financial standards. Prices of emerging markets securities can be significantly more volatile than the prices of securities in developed countries and currency risk and political risks are accentuated in emerging markets.
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The Funds are distributed by Unified Financial Securities, Inc., 2960 North Meridian Street, Suite 300, Indianapolis, IN 46208 (Member FINRA), a wholly owned subsidiary of Huntington Bancshares, Inc. and an affiliate of Huntington Asset Advisors, Inc., the advisor to the Huntington Funds.