Market Review November 2011

It’s getting a bit repetitive now with yet another volatile month of investment markets. However, the rally last week has provided a little respite and the sector faring the best was North America for the first time since June 2011 and it wins Sector of the month with a positive return of 2.5% since last month's report.

Back in August, the US government questioned the decision by S&P, the ratings agency, to downgrade the country's AAA rating. Nevertheless, on reflection, it looks to have been the correct course of action, so perhaps the agency should not be criticized for taking action then but instead applauded for its early warning to change the situation before it is too late – could this also be the situation with the European countries in danger of being downgraded?. It could also be considered as a reflection of the world's debt metrics. Developed markets are deteriorating, while emerging markets continue to improve. 

There is now talk that S&P ratings may be downgraded by up to two notches in 15 European countries, including Germany and France. Many experts have viewed the timing of the decision by S&P to be controversial, with Eurozone policy makers due to meet at a summit in Brussels on Thursday and Friday of this week. 

Analysts have warned that the decision will put extra pressure on the summit leaders to produce quick results in order to stabilize markets and regain investor confidence. However, there has been a history of insufficient action from Eurozone decision makers in the past, although this may urge them to step up to the challenge.

Sarkozy and Merkel are cozying up and are giving the impression that they are trying to bring about a sustainable and viable solution whilst the UK looks on from the sidelines. Whether the discussions are for the greater good of Europe as a whole or just France and Germany remains to be seen.

Already a number of potential parts to a solution are already in place, such as austerity packages for Italy and Greece and the efforts by central banks to provide extra liquidity to the banking system.

It seems that every time it looks like a problem looks like being resolved that another problem comes along in its place. A procession of financial disasters turns up one after the other but none appear to spell Armageddon to the investment markets. Will we ever see a final solution or will we just limp along and learn to live with the problems happy with minor tweaks here and there? Will we see only tiny improvements year on year? If so it is likely to take decades before any significant impact is made on the financial situation we have now.