Now that we’re a few years into a bull market and these cycles don’t last forever, many investors are considering alternatives to the equities, commodities and real estate plays that have performed so well over the past few years. Here are a few trends we’re seeing in the European region specifically that may give investors pause:
- Cyprus – First, with jaws agape the world wide, there was a proposal that all Cypriot depositors should take a haircut of between 5%-10% depending on the size of their deposits to bail out banks. Aside from the vile nature of an outright confiscation of funds from people who were actually responsible and saved their money, there was some concern over whether this contagion could spread to other “weak” EU regions like Italy, Spain, Portugal or others. Next though, what appears to have happened is that some people had access to their funds via subsidiaries and electronic banking and pulled them out during the ensuing voting and delays and now the only ones left holding the bag are routine citizens. So, Russians, business owners and others who had major deposits may have cleared out their at-risk funds while the routine man on the street may see their deposits wiped out. This is pretty alarming and has some wondering whether it could happen in their country.
- UK Farmland – I’ve been finding the recent trend of record prices for UK farmland to be interesting. Since 2008, UK farmland has appreciated 51% according to my recent print edition of BusinessWeek. They also predict this rise will continue. I suppose this is a move out of the standard equities and away from the lower-yielding government bonds in favor of an income producing asset with future capital appreciation potential. However, there’s nothing to stop this trend from reversing, especially if there’s a bubble forming here.
- Global Slowdown – There’s not really any strong fundamentals driving the current market rallies; it seems to be more due to the liquidity in the system and low interest rates pushing people into risk assets. That being the case, it makes one consider taking some funds off the table in the spirit of principal protection. If you’re already relatively highly invested in risk assets, perhaps it makes sense to diversify a bit into safer assets and to consider a fixed rate cash isa. Much depends on your risk tolerance and time horizon, but being 100% invested now might keep some people up at night.