But a lot did change in the first half of the year and recent events have emphasised three lessons. The first is that political risk is very real. Over the past decade or so, investors seem to have decided that such risks are overblown. Middle East crises have come and gone without the straits of Hormuz being blocked and oil supplies impeded. Congress has repeatedly threatened to shut down the government and drive America into technical default by refusing to raise the limit on its debts—but at the last minute, deals get done. Scotland did not vote to leave the United Kingdom. Russia and the West may be at loggerheads over Ukraine, but that has affected Russian markets, not those in Europe or America.

For much of this year, investors have accordingly assumed that politics would proceed as usual: a Greek deal would be done, albeit at the last minute. Hedge-fund managers who would shun the socialist views of the Syriza leadership piled into Greek shares and bonds. Some apparently hired body-language experts to assess the gestures of Alexis Tsipras and Yanis Varoufakis so as to anticipate their actions. But Syriza was elected on a promise to break with the past; ideological opposition to austerity has pushed the Greeks all the way to capital controls and bank closures. Even if a deal is agreed in the end, a lot of damage has been done.

There are other insurgent parties in Europe that reject the old politics. Although none has yet had the same electoral success as Syriza, they are still having an effect on the mainstream parties. Britain’s frantic attempts to renegotiate the terms of its EU membership are a response in part to the rise of the UK Independence Party.

In a world where growth has been hard to achieve, politicians do not have a bigger pie to divide up and dish out. A concession made to one group must be at the cost of another. The temptation then is blame outsiders (foreigners) for the mess and to seek to gain at their expense. This makes it harder to achieve compromise in international negotiations, as the Greek saga and the refugee crisis in the Mediterranean have amply illustrated.

The second lesson is that investors are still dependent on the largesse of central banks. There was a sell-off in equities on June 29th when fears of a Greek exit from the euro zone resurfaced.

But it was not as big as it would have been in 2011. Crucially, the bonds of euro-zone members such as Portugal and Italy suffered only minor losses. That is because the European Central Bank has the monetary firepower to buy those countries’ bonds and ward off contagion.
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But what central banks give, they can take away. The big guessing game for investors in the first half of the year was when the Federal Reserve would increase rates—the first rise since 2006. It is clearly a tricky decision: the American economy was weak in the first quarter and core inflation is below target. A big Greek shock may have an impact. On June 29th, as Greece imposed capital controls, the futures market indicated that investors were less sure rates would rise in September. If Greece strikes a deal, the Fed will have more freedom to act.

The third lesson is that, because of reduced liquidity, markets can move very rapidly indeed. In the government-bond market, German ten-year yields went from 0.5% to almost zero in April, before shooting back up to nearly 1% and then falling back again. These are huge moves for a “risk-free” asset.

Illiquidity makes the markets vulnerable to a truly unforeseen shock. Greece’s epic woes, which have been dragging on for five years, do not really count. Asia, where economic data have been mixed, could be the source of a nasty surprise: the latest South Korean and Taiwanese purchasing managers’ indices for the manufacturing sector are well below 50, indicating declining activity. According to Markit, a data firm, the global purchasing managers’ index dropped to 51 in June from 51.3 in the previous month.

The consensus has been that both the global economy and corporate profits will strengthen in the second half. If that doesn’t turn out to be the case, equity markets could be vulnerable.