Ongoing issues in Europe continue to be the biggest near-term concern facing the global economy and stock markets at present. An increasing likelihood of a Greece default continues to be a major overhang. Over the next few weeks there will likely be further volatility given that speculation is that Greece could run out of cash at some point in November without the new 8 billion euro aid installment, therefore increasing the risk of a default. Ultimately, the stability of the global financial system and the general economy will depend on the urgency and magnitude of the response from governments and central banks (ie. coming up with a viable plan to backstop the banks in the event of sovereign debt defaults).

 

The Slovak parliament is expected to hold a second vote later this week and most market observers expect the proposal to pass. Three of the four parties in the controlling party's coalition support it and the left-wing opposition indicated that it would be prepared to support the measure.

 

Although recent focus has been concentrated on developments in Europe and certainly not to undermine their importance, there are other global positive and supportive factors worth noting for investors:

 

The recent move by the domestic arm of China’s sovereign wealth fund to purchase shares in the country’s four largest banks perhaps signals that valuations are beginning to appear extremely compelling following recent declines.  It is worth nothing that the fund’s first such public intervention was at the onset of the financial crisis three years ago. Looking deeper into this, perhaps the move to support state-owned financial institutions also signals a gradual move towards a more accommodative monetary policy in China.  The recent decline in base metals and energy prices helps to alleviate inflationary pressures in China. The process of reversing monetary policy is not an overnight event of course, but nonetheless it suggests some level of support for commodities and the related equities.

 

In summary, we continue to believe that we will be in a fairly range-bound environment and would therefore be inclined to take some profits on names that have performed well. We also continue to recommend focusing on quality dividend paying securities.