15:08 19May11 -ANALYSIS-Markets unmoved by IMF troubles but wary of vacuum
By Jeremy Gaunt, European Investment Correspondent
LONDON (Reuters) - The dramatic arrest and resignation of IMF chief Dominique Strauss-Khan has left global markets cold, with only a protracted vacuum at the top of the international crisis lender likely to inject any angst.
What fear exists is that leaders will wind up in stalemate over the appointment and a new crisis blows up with no one leading the institution who can forge compromises.
Despite grabbing world headlines, Strauss-Kahn's troubles have had little discernible impact on asset prices, even in Europe where the International Monetary Fund is deeply involved in solving the euro zone debt crisis.
The euro, indeed, has actually risen against the dollar during the period since Saturday's arrest -- driven higher by poor U.S. economic data and interest-rate differentials.
World stocks .MIWD00000PUS have remained relatively steady. Euro zone bond yields have been volatile, but this has been as much to do with a series of conflicting comments from finance ministers and central bankers.
Ask many investors how the DSK/IMF issue is effecting them and the following is a typical answer is that it is a micro event at most or has "zero impact" short-term on markets.
As for longer-term allocation by fund managers, the most that is likely to happen is that concern about the IMF may simply have confirmed positions that investors have already taken.
Richard Batty, investment director at Standard Life Investments, says, for example, that a hole at the top of the IMF may add to the conviction of many that an inordinate amount of time is being taken to solve the debt crisis.
"The danger is that if the direction of an institution changed that it's not for the better," he said.
But his firm already has positions that reflect its distress about the situation in Europe. It is underweight European equities and fixed income and has been selling the euro against the dollar and sterling.
Risk premia are in many ways already built into asset prices.
It would be a mistake, however, to think that as a result of this investors have no dog in the fight when it comes to the IMF and a potential leadership vacuum.
In the words of Jeremy Armitage, head of research at State Street Global Markets, the IMF is currently a "contingent problem" for investors -- that is, everything is fine as long as nothing goes wrong.
"If policymakers need to respond quickly, will they be able to do that?" Armitage asked. "Can the IMF make decisions over a weekend quickly if need be?"
The issue is not that the IMF cannot work without a formal head -- existing programmes should continue without a glitch.
It is, rather, that when a crisis blows up suddenly, the IMF head is crucial in leading the institution in negotnegotiationsations and banging out comprimises.
"If we were to fall into another crisis period, say Spain, is there an ability and willingness to put together an efficient plan?" said Sanjay Joshi, portfolio manager at wealth manager London & Capital.
"On a day-to-day basis (the IMF) is of little significance for portfolio managers. (But) there are times when there are stresses in the financial markets and the IMF has provided a lead to the solution."
(Editing by Patrick Graham)
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