Right back where we started

ANY investor who fell asleep on January 1st and woke up on June 30th might feel they had not missed anything. The S&P 500 index ended the first half pretty much where it started; the same is true of London’s FTSE 100 index. The ten-year Treasury-bond yield edged up by around a fifth of a percentage point (see chart). Nor would a reawakened investor be particularly surprised to find that Europe was still engulfed in a Greek crisis.

But a lot did change in the first half of the year and recent events have emphasised three lessons. The first is that political risk is very real. Over the past decade or so, investors seem to have decided that such risks are overblown. Middle East crises have come and gone without the straits of Hormuz being blocked and oil supplies impeded. Congress has repeatedly threatened to shut down the government and drive America into technical default by refusing to raise the limit on its debts—but at the last minute, deals get done. Scotland did not vote to leave the United Kingdom. Russia and the West may be at loggerheads over Ukraine, but that has affected Russian markets, not those in Europe or...Continue reading