Another fine excuse for selling stocks
There is no question that the losses on stock markets at the moment are primarily the result of the Greek crisis. A downgrade of a euro zone country’s sovereign debt to junk is enough to make all but insane mainstream investors take a large step away from risk.
But could it also be that the Greek crisis has come at a time when big investors were looking for an excuse to cool down the equity rally? MSCI’s all-country world stock index hit a peak on April 15 that was not only higher than anything seen this year, but also last year as well. Up about 85 percent from its March 2009 lows, in fact.
Partly as a result, there were some signs emerging that suggested a correction would soon be in the works.
— Morgan Stanley noted that one of the indexes it follows had been up at least 50 percent year-on-year eight times in March. History showed that on 77 percent of such occasions that equity markets had subsequently fallen 4 percent.
— Bank of America Merrill Lynch’s April fund manager survey saw cash holdings had dropped to 3.5 percent of assets. On four out of five occasions that that has happened before, BofA said, equities declined by 7 percent in the following 4-5 weeks.
Now comes a new sign. State Street’s investor confidence index dropped below 100 this month, the first time it was in risk averse territory for more than a year. It was only a small drop, but significantly it was the first time since March 2009 that it has been below 100.
So, yes, Greece is pummeling markets and putting the frights into in global investors. But the market could well have been ripe for it anyway.