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July 13, 2015 at 06:43 AM
Last week we began a discussion on finding returns in this very challenging market. This week we’ll look at three major risks facing us today.
Greece
I believe the three most important financial issues of the day are Greece, China and the massive amount of global debt. As you probably know, the voters in Greece rejected an offer that would have brought more financial relief along with austerity requirements. Greece’s “no” vote raises the possibility that it may exit the eurozone. This also raises the level of uncertainty in the financial markets. Perhaps the more important issue is the powder keg that exists in Spain, Italy and Portugal. Surprisingly, despite all of the known issues, the Athens Stock Exchange is down only 2.28% this year. However, during the past 12 months it’s down 29.92%. Clearly, this is an issue to monitor.
China
From Jan. 1 through April 27, while U.S. stocks were struggling to stay in positive territory, the Alpha Shares China All Cap Index rose 24%. After such a meteoric rise, the index collapsed, and by July 8,it was at -6.67%. China was officially in a bear market. Two days later it rose nearly 8% to its present level of 1.29%. But the real story is the spike in volatility.
On March 16, 2011, the Chicago Board Options Exchange (source of the VIX) introduced six volatility indexes, including one that tracks Chinese stocks. As of July 10, the Chinese VIX was at 38.91. This is above its historical average of 26.70, but below its peak of 63.42. Volatility in the Chinese stock market as measured by the Chinese VIX has risen by 50% in 2015. Chinese stocks have been fluctuating tremendously on an intraday basis. Although volatility has fallen over 15% since July 8, it still bears watching with a cautious paradigm.
Debt
