Writing about the Greek crisis is about as useful as rereading yesterday‟s fish and chip paper. Events will overtake anything written today, and the events seem to belong in more of a soap opera rather than a serious economic and political crisis. However, it may be worth recalling, if only for ease of reference, just how much the UK banks are exposed to Greece and the other weakened peripheral nations. The grand total (as quoted from Barclays Capital as of Q4 2010) is just over $380bn, with the breakdown being exposure to Greece $19bn, to Portugal $29bn and to Spain $138bn. However, the largest exposure for the UK is of course to Ireland at $194bn. This is in fact slightly more than the French, who have a total exposure of $329bn with their largest risk being to Spain at $176bn. The largest European exposure, not unsurprisingly though, is with Germany who have a total of $473bn with large exposures to both Spain and Ireland.

However, what I found most interesting was the other large debt holder who is well and truly on the hook and probably needs to be more creative over the situation, not just be throwing brickbats at those „irresponsible‟ Europeans. That is, of course, the USA with a US bank exposure of $372bn, making it number three in the title contenders for the most exposed.
So we have to sit back and watch this „Greek‟ tragedy play out. Whilst politicians still stare at the symptoms (trying to avoid an outright default) perhaps others will be looking at the root causes and start to address those issues as I have discussed before. Perhaps though we should take more comfort from the numbers overall for the whole Eurozone, because if you combined them into a single financial super state then there would be no financial crisis of either debt or deficit. So, time for European politicians to take a European view and not just a national one maybe. Crisis – what crisis?

So to another survey whose headline shouts out; 90% of investors are interested in emerging market funds. This report provides us with this stunningly obvious result - and no doubt someone has paid good money to write it and others to buy it. Such a report comes after a decade when emerging markets have been the darling of the investment world - thus when the given market acceptance is so certain that such investments are a one way bet and everyone has such confidence, and even complacency, then this is the time to be suitably circumspect and question the consensus.

On my travels last week I read an excellent column in the FT by Peter Tasker of Arcus Research, highlighting the possible risks coming to the fore with emerging markets, especially after the huge amount of investment that has already been poured into these markets.

He highlights as evidence for this the „equitisation ratio‟. This is a broad indicator of financial development of a country‟s stock market in relation to its GDP, and cited Warren Buffett saying that “this ratio is the best single measure of where valuations stand at any given moment”. He illustrates his argument by showing countries like the UK and Switzerland having higher ratios, with larger companies with large institutional investors and a relatively large and more affluent middle class. Historically therefore it would be usual for lower income countries to have low equitisation ratios.

In the US the ratio remained below 80% from 1930 to 1996 and only in 1929, the early 1970‟s and the dotcom boom did it rise over that level – such moves all „heralded lousy long term returns‟.

In 2003 many emerging markets and the BRICs all had their equitisation ratios below 50%; now Brazil, India, Thailand, South Africa, Saudi Arabia and South Korea all have ratios over that key 80% level. Just to take things further Canada, Australia and Malaysia all have ratios over 130% - although this could be related to their linkages and significant dependence on Chinese commodity demand. Chile have created their own record with a peak of 185%!

So looking at these indicators it would appear that the risk levels have been increased - and possibly exceeded worrying levels. Perhaps the „old fashioned blue chips‟ might just the longer term assets to be holding more of again?

And finally...............a study has found that „growing meat in the lab‟ rather than slaughtering animals would generate only a tiny fraction of the greenhouse gas emissions associated with conventional livestock production.

According to the analysis by scientists from Oxford University and Amsterdam University, lab-grown tissue would reduce greenhouse gases by up to 96% in comparison to raising animals. The process would require between 7% and 45% less energy than the same volume of conventionally produced meat such as pork, beef, or lamb, and could be engineered to use only 1% of the land and 4% of the water associated with conventional meat.

Aside from its predicted environmental benefits, lab-cultured meat should also provide cheap nutrition, and would help improve animal welfare as well as potentially taking huge pressure off farmland around the world.

It is predicted that if more resources are put into the research, the first commercially lab-grown meat could be available within five years. The first samples are likely to be like mincemeat in texture, while producing steaks could take at least five years longer.

The study showed some of the complex implications of tissue engineering. For instance, it would take more energy to produce lab-grown chicken than it does for poultry, but would only use a fraction of the land area and water needed to rear chickens. This does of course throw into question that key debate of which came first? The chicken or the egg – or now that Petri dish in the corner with some ooze in it.....?

Have a good week.

Justin A. Urquhart Stewart Director Seven Investment Management Limited