Reuters: Financial Services and Real Estate: RPT-Selling in May could be shrewd in uncertain 2012

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RPT-Selling in May could be shrewd in uncertain 2012 Apr 30th 2012, 07:54 Mon Apr 30, 2012 3:54am EDT (Repeats Friday story without changes) * France, Spain seen as headwinds over summer * Defensive stance, options markets recommended By Tricia Wright LONDON, April 27 (Reuters) - The summer months are typically bleak for equities and this year the adage "sell in May and go away" could prove valid advice given French political risk and Spain's precarious debt position. Investors would do well to turn to options markets as a buffer for their portfolios over the summer, or to switch into more defensive sectors and countries, strategists said. The advice to 'sell in May' dates back to the days when London's financial centre, the City, all but ground to a halt as stockbrokers took off to enjoy the summer and attend events like Wimbledon and Ascot, resulting in muted investor returns. These days the holiday-making is far more limited, but the sentiment behind the expression is borne out by the facts, with the MSCI World index on average having underperformed in the summer months dating back to 1971. This year, the risks are amplified by French presidential elections and parliamentary polls in Greece on May 6. A victory for left-wing Francois Hollande in France could mean a relaxation of euro zone austerity. In Greece, if more populist parties win, they could renege on the terms of its bailout. "This summer could be worse than others because so many countries are going wrong at the same time - and big countries," Louise Cooper, market analyst at BGC Partners, said. "It's almost like the further that you go through the crisis the uglier it could get." Confidence has deteriorated markedly in recent weeks as doubts grow about Spain's ability to manage the debts of its banks, government and consumers when its economy is shrinking. This raises the prospect of euro zone's fourth-largest economy joining Greece, Ireland and Portugal in seeking a bailout. Reflecting investor tension, Spain's IBEX 35 is off around 18 percent since mid-March peaks, whilst Germany's DAX , seen by some as safer, is only down about 6 percent. Orrin Sharp-Pierson, global equity and derivatives strategist at BNP Paribas, said protection from summer market weakness could be gained by buying Euro STOXX 50 'put' options - which enable investors to sell their holdings at a pre-determined price at a set time, thus limiting the impact of any market fall - for June. Such a position could be paid for by selling puts in the index for December, effectively betting that it won't fall very steeply in the final months of the year, and could even rebound. In anticipation of a troublesome May, analysts at Cheuvreux recommended a more defensive stance in both sectors and countries. While lifting the view on healthcare and Britain to "overweight", it has cut Italy to "underweight" and Germany, a market of cyclical rather than secure growth, to "neutral". It anticipates the 'election effect' to take the French CAC 40 index down to the 3,000 level "quite soon" - a fall of around 8 percent from Friday's levels - before rebounding. "We should expect erratic market swings, of the kind most investors detest, for some months. Sustained recovery is a different matter," Cheuvreux analysts said in a note. (Reporting by Tricia Wright; Graphic by Scott Barber; Editing by Ruth Pitchford) Link this Share this Digg this Email Reprints

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