MORE DIVERSE INVESTMENT IN 2013–S&P’S GREEK UPGRADE COULD MEAN

For the euro zone’s guardians, the year is ending in a fashion they could scarcely have hoped for when it began.

 Back then, talk of a euro breakup was perhaps more mainstream that it had ever been. Once the preserve of

Anglo-Saxon curmudgeons and unreconstructed Friedmanites–stopped clocks who have always hated the entire

project–eurogeddon was suddenly, even urgently, investable. That Greece would have to leave the bloc was

pretty close to a certainty. And once the exit door was kicked open, well…

 Those who could, took their money out altogether; those who couldn’t, moved it to Germany in the hope that

it would at least be left afloat if the currency foundered. Eventually, investors were paying Berlin to hold

their cash.

 But look at the bloc now. Not only has it stayed together, but Standard & Poor’s has even resurrected Greece’s

credit rating. Impressed by the euro zone’s determination to cohere, the agency has lifted Greece from the hell

of “selective default” to the purgatory of junk status. Its sovereign score is now B-minus.

 S&P’s early Christmas present has helped give global markets a last-minute burst of risk appetite to liven up

the final trading sessions of 2012.

 However, it’s also one mighty nail in the coffin of the overall “risk trade,” which has been dominating the

investment world all year, and indeed since 2008. This tediously binary state of play saw major traded currencies

and equity more closely correlated than they’ve been before in the free-float era.

 Now, even before S&P started playing Santa Claus there was plenty of speculation around that the trade would

loosen its grip in 2013. Here’s Deutsche Bank with a good example of the genre:

 “The fundamental driver of FX/equity correlation was likely (the) global synchronization of business cycles,

most prominently in 2008-09. This correlation has been falling… as the U.S. economy outperforms an austerity-led

European recession and Asian growth increasingly drives dollar bloc and Scandinavian economies.”

 In other words, investors could at long last see the point of a more diverse approach.

 It’s important to stress, as many of those Anglo-Saxon curmudgeons are doing this morning, that Greece is

nowhere near market access or economic healing as a result of S&P’s move, welcome though it is. Europe remains

fractious, split between core and periphery, and desperately short of growth. But, for global investors, that

can now be viewed more as Europe’s problem than a potential economic planet killer, a fact S&P has helpfully

underlined. With the tail risk of eurogeddon removed, they will be able to look for better opportunities

elsewhere.

 Already Wednesday we’ve seen the Nikkei stock-market index in Tokyo pierce 10000 for the first time since

April as investors look hopefully to Washington’s fiscal cliff wrangling and, closer to home, hope for more

economic stimulus from the Bank of Japan.

 It looks like a more diverse world already.

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