Market Review January 2012

A good month all round with good increases across the board.

The “Sector of the Month” award goes to the Specialist sector with an increase of more than 10% since last month. This is the second time that the Specialist sector has won the award.

Although Gold has driven the Specialist Sector in the past, it is not necessarily the main influence over the past month, as investments is specific niche markets that have not had their own sector such as Latin America, Korea and other natural resources have all played their part.

Since July 2011 when the Specialist Sector last won Sector of the Month the price of gold has gone from the opening price on 1 July 2011 of £932.095 to £1,105.617 at the close of business on 31 January2012.

After a very long period of significant market volatility the past month has been no exception.

We have had much less bad news and markets have responded accordingly.

After what seemed like a dozen “last chance” attempts to save the Euro, save Greece, save whatever else came our way it looks as though something has happened to provide a little optimism.

Right now it looks like investors will be taking a haircut of around 70%. Existing Greek bonds, as they mature will pay out 10-15% in cash and the new replacement 30yr bond will be issued with a coupon of circa. 3.5-3.75%. There has also been talk of a "GDP sweetener" for investors which would give holders a warrant to claim a higher coupon should Greece hit a predefined GDP target in future years. This is a novel & smart feature that has appeased the creditor group, but importantly does no further damage to Greek finances whilst the economy is struggling.

The current stumbling block has arrived out of left court. The IMF is suggesting that there should also be Official sector involvement (the “OSI”) in the haircut. Germany though is arguing against this. Let's hope the two sides are not too entrenched in their views. There is certainly room for compromise in this latest debate, as the ECB who holds €40bn of Greek bonds stands to make large gains from its holdings if they eventually redeem at par. The latest suggestion that the ECB give up future gains (but not participate in the initial haircut) seems a sensible compromise which would plug the current funding gap that appears to be concerning the IMF.

Should all this be agreed markets are quite likely take another move forward.

So everyone will be happy, at least up to 20 March 2012 when the next Greek Bond is due to mature. There was some less encouraging news in respect of the UK economy and we wait with baited breath for the next quarter results to see if we are officially in recession.