YOU'D have to wonder how long it'll be before Europe's resurgent sovereign debt problems are felt here and whether France will follow Spain.

You'd also have to wonder how much longer punters, house traders and dealers trading on their own accounts can keep churning penny stocks here if they keep playing among themselves with no fresh money coming into the market.

Finally, you'd have to wonder - if Spain goes under and France follows, will the "troika'' that saved Greece, ie the European Central Bank, the International Monetary Fund and the European Commission - have the firepower to do it all over again for countries with even larger economies?

Europe's stock markets have been under the cosh for some time now and it probably hasn't passed unnoticed that after posting double-digit gains in the first couple of months of 2012, all have slipped sharply backwards and some are already in the red. In its April fund manager survey, Bank of America-Merrill Lynch (BoA-ML) last week said 54 per cent of the panel surveyed says that European Union sovereign debt funding is the number one tail risk, up from a 38 per cent in March.

"A net 63 per cent of the panel predicts that Spain is likely to provide a negative surprise in 2012, up from a net 50 per cent last month," said BoA-ML.

"But France is close behind Spain, with a net 56 per cent of the panel saying France could provide a negative surprise, up from a net 52 per cent".

(A total of 256 panellists with US$706 billion of assets under management participated in the survey from 5-12 April. A total of 191 managers, managing US$554 billion, participated in the global survey. A total of 137 managers, managing US$317 billion, participated in the regional surveys).

Not surprisingly, BoA-ML concluded that the second quarter is expected to be heavily tinged with caution, and this has manifested itself in the poor volume of the past couple of months.

In contrast, the speculative element within the local market seems to be throwing caution to the wind as it focuses on cheap penny stocks, most of which have nothing going for them other than low absolute prices.

The rationale for the heavy punting of sub-20 cents counters - with a heavy bias in favour of those under five cents - is that percentage gains are much more readily available (or easily engineered). After all, one cent to two cents or 0.1 to 0.2 of a cent is seen as much more achievable than say $1 to $2. This reasoning as a seductive logic to it which would appeal to some of a particular risk inclination, though it's worth emphasising that the seemingly large unit volume seen every day in such counters could disappear just as quickly as it appeared because it is largely generated by day traders. If this occurs, then the one cent stock that was pushed to two cents could easily slip back to one cent. For those who prefer to stick to the quality stuff, ie the index stocks, then it might be worthwhile to keep an eye on the economic releases due out this week. A full list can be found on the Singapore Exchange's My Gateway web page, including US durable goods orders, US jobless claims and all the earnings due to be released by local companies.

All of this is actually a roundabout way of saying that the outlook this week is almost identical to the one before and the one before. There are no signs of a return of the liquidity that drove the stellar returns of the first quarter, which is understandable given that it is now clear that saving Greece granted Europe only temporary reprieve from its debt problems.

In the meantime, house traders and dealers have to keep themselves busy and generate income, so the penny stock churning will probably continue. It doesn't really add up to a particularly healthy state of affairs, but at least there are no obvious signs of a crash yet.