Three reasons the eurozone crisis is not a repeat of 2008

Thames River multi-manager duo Gary Potter and Rob Burdett said although events in the eurozone crisis is weighing on market sentiment, several indicators suggest it will not be as severe as 2008.

Potter and Burdett, who run one of the largest multi-manager ranges in the UK, explain why this year will not see a return to the dark days of 2008.

1. US credit markets are stable

The managers said, compared to 2008, US credit markets are stable, as banks are showing a lot more willingness to lend than they did post Lehmans.

Federal Reserve statistics measuring senior loan officers' willingness to lend showed a 18.8% increase in their readiness to grant consumer loans, compared to a 47.2% fall in September 2008.

Moreover, the LIBOR rate this time around is much lower. In 2008 the average interest rates banks were lending at was 2.82%, but at the start of 2012 LIBOR was 0.58%.

"If people are worried the eurozone crisis has parallels to 2008 then they need to take a look at the US credit market which is faring so much better this time around," said Potter.

"Banks are trying to pull in deposits, which is a sign the crisis is starting to wade its way through.

"Economic fundamentals are marginally improving in the US, with growth running at 2%," they said.

2. Corporate earnings and dividends are stronger

The FTSE 100 may remain rangebound between 5,000 and 6,000 for a number of years, but the multi-managers are optimistic on the outlook for dividends.

"Corporate earnings and dividends grew 9% last year and are expected to grow at 6%-7% in 2012," said Potter.

"Dividend growth has been driven by balance sheets being so much stronger than they were during the credit crunch due to corporate debt being refinanced.

"Firms have deleveraged and have held on to high levels of cash, and in my opinion this had led to balance sheets being the strongest in thirty years."

3. Businesses are buying back stock

Potter added share buybacks are on the increase and at a higher level than in 2008, resulting in stronger investor sentiment towards equities this time around.

"Put call ratios are showing corporations and business owners are buying back stock in their own companies at levels a lot high than in 2008," said Potter.

"This shows investors believe in their companies and take the view share prices are trading at depressed levels with plenty of upside."