As we head towards the end of the first half investors seem to be approaching the second half of 2015 with a distinct degree of caution and trepidation. When stock markets have recorded the sort of mixed and in some cases meagre to negative returns for a six month period, one has to ask the question as to whether there is any meaningful investor appetite left to lift equities higher. At the same time FX markets have had a very turbulent first half, which looks set to continue in the months ahead when looking at what the economic and political calendar has in store. When looking back briefly at the first half we can rest assured that it was not in the slightest bit short of impactful events. The year started with a bang as equity market volatility remained high after spiking towards the end of 2014, leading to large oscillations in global indices and FX market volatility sky rocketed after the Black Swan event that was the Swiss National Bank’s removal of its currency ceiling against the euro. Since then, apart from a pullback in February, FX volatility has remained at heightened levels due to not only considerable geopolitical uncertainty, but economic uncertainty as well, whereas equity market volatility has fallen from the highs of earlier in the year. In respect to returns, as mentioned these are very mixed so far for 2015. UK and US national benchmarks are as good as flat, European benchmarks positive due to the impetus from the European Central Bank’s quantitative easing program and more recently renewed optimism of a deal for Greece, although their impressive gains have dwindled somewhat in the second quarter, Indian stocks are largely negative and the only real standout is the Shanghai Composite seeing over a 40% gain so far. In the FX world the dollar has added to the impressive returns it made in the latter part of 2014, with the dollar index up over 5% year to date and the majority of those gains coming at the expense of the yen and euro. It’s not just the dollar that has benefitted from euro weakness with sterling up 8% against the single currency and the pound has held its own against the mighty US dollar, up just over 1% year to date. Whilst the first half shows a very mixed picture when it comes to returns across asset classes, it suggests bifurcation amongst investors and indicates a wide ranging concern about what the second half has in store. There are three major issues casting a long shadow over the rest of this year with the first being the ongoing Greece saga, the second being the continuing slowdown in China and the third is the US Federal Reserve’s approach to raising interest rates from their all-time historical low. All have been hotly debated throughout the year intensifying as we reach breaking point. Let’s look at the Greece issue first as it finally looks as though it is going to …
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