2012 has seen a renewed sense of optimism enter the marketplace, with equity markets across the globe recording impressive gains in the first part of the year. Last year equities markets in the Middle East couldn't escape the negative sentiment stemming from the Europe and fears of a global recession; however renewed optimism surrounding the US economy and the ability of the Eurozone to solve its debt crisis has driven equities forward this year. But is this rally sustainable? Whilst we think the US will muddle along this year, there is still significant risk to global growth coming from Europe and possibly China.
In Europe, the threat of a Eurozone break-up has diminished but not entirely disappeared. Given the sheer size of the problems facing Greece the second bail-out package scheduled for Athens may only be a stop-gap measure. We are doubtful that Athens will be able to implement the required reforms as outlined in the second bailout package, and even if Greece somehow implements these measures we are not sure they are enough to bring Greece's debt/GDP back down to more sustainable levels.
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