However, the herd instinct of the market tends to overestimate
the speed and impact of legislation and regulation
under consideration. Maintaining a sense of proportion
and perspective is essential. Measures such as the mooted
EU-wide financial transaction tax may make headlines, but
the possibility of its introduction has been priced into stock
market valuations already. New regulations can also yield
investment opportunities. The anti-monopoly regulations
that forced Royal Bank of Scotland to spin off a portion
of its retail business created an opportunity for Banco
Santander to expand its presence in the UK, for example.
Similarly, even the political instability of the eurozone
has its advantages. With all eurozone companies suffering
under the same dark cloud, the debt of some solid firms is
trading at discounts of 10% to 20%. This is allowing investors
to purchase high-quality commercial paper with effective
annual yields of 13% to 15%.