Is it time to invest?

By ADRIAN LOWCOCK 27/05/2010

Since 15th April 2010 the FTSE 100 has fallen from a peak of 5,825 to just over 5,000, a drop of nearly 15%. There have been several factors that have contributed to the fall:

Greece

The markets have been concerned over the ability of Greece to repay its debt. If the country does default on its repayments, the impact of this will by be felt by other countries, such as Spain, and the euro currency itself.

Short selling

Germany’s decision to ban short selling gave the impression that they were out of ideas on how to resolve the problems within the Eurozone. Stock markets reacted negatively to this and fell further from their previous highs.

Hung parliament

The concerns about the UK having a no clear majority Government ended up being overshadowed by the European crisis. Credit rating agencies have given the UK the benefit of the doubt because our track record demonstrates we can make the tough decisions.

Markets do ignore the facts

In December 2009, the focus was on Dubai. At the time, many were also saying that Greece was the next crisis, but markets chose to ignore the issue and carried on up regardless. This time the Eurozone has failed to implement a scalable plan to prevent Greek systematic collapse, but markets did respond favourably this time, only to fall back.

Age of austerity

Greece has been forced into implementing an austerity programme. Spain and Italy have also followed suit announcing €19 billion and €24 billion of cuts, with the UK indicating £6 billion of cuts; undoubtedly there will more to follow.

Markets are not the economy

Many of the companies listed in the UK and in Europe are not solely dependent on the domestic economy. There are also companies, which are defensive in nature, which will be able to continue to profit in the current economic climate. Indeed, company earnings are looking very attractive at present and shares are also paying good dividends (FTSE 100 is currently yielding 3.8%).