The over the weekend result of both France and Greece elections have produced a result which could cause short-term bearish sentiment to global markets as the winner of both the elections is never a doubt against of the current austerity measures. As can seen from today reaction in both the currency and Asian markets, Euro dropping to below 1.30 against USD and Asian bourses all down by at least 1% with US future markets also dropping average 1%.
The new French President who is very much against the austerity measures breaks the partnership between the German and French who in the past have been working hand in hand to resolve the debt crisis. This current French President unfortunately stands on the opposite side of German leader. Greece election shows no majority party winning and with those parties that are in support of the austerity measures all loosing more seats. This has created a fear that the new Government will not compromise for more austerity to revive the growth and hence increases the chance of Greece might exit Euro.
The possibility of Greece exiting Euro is not something surprised of as I have been mentioning that since the last Greece's bailout that the option remains possible and it will be good for Greece and Eurozone as a whole in the long run.
The new French Government perhaps is some uncertainty that need to monitor closely. Though the new French leader is more against austerity but with France still having high debt issue and as long as France is inside the Eurozone, they are being bounded to the EU fiscal pact ( awaiting for finalization ). The negative impact might not be very damaging.
With the new elections result, Eurozone will continue to torn between the austerity vs growth issue and might drag on for months. However, don't be overly pessimistic, when the austerity vs growth issue hit the worst part, it perhaps is time for the whole saga to bottom and reverse from it. EU leaders will then co-operate together against to work on the growth portion of the economy.
Investors should start monitoring for the austerity vs growth issue to hit bottom as that could be the chance to buy stocks on cheap valuation. Most of Singapore companies produced firm 1Q2012 earning as for now and hence the fundamental is not something that is questionable about.
