Market Round Up

UK

• UK market has proved relatively resilient in the face of negative news
• Company news flow reflected the divergence between the weak domestic economy and more buoyant overseas market
• M&S announced a fall in sales of -3.4%, which was better than expected, while the company’s overseas sales rose by 12.6%
• Having suffered a number of set-backs in mid-March, strong corporate profits helped the FTSE to close above the important 6000 level on all but six days and ended the month up 2.8%
• The Bank of England left interest rates unchanged with the minutes from the Monetary Policy Committee meeting showing the same 6-3 split on the decision

US

• In his recent press conference, Ben Bernanke made it clear that while the Fed is going to end QE2 on schedule in June, they will “keep the balance sheet steady” going forward, in effect meaning there will be no policy tightening
• Following the press conference the dollar declined against all major counterparts to multi year lows
• The weakness in the dollar is against a backdrop where companies are generally reporting excellent returns.  In particular there has been good news from the banking sector and a surge in M&A activity
• It is evident that where companies have more exposure to corporate spending and less to consumer spending, their statements are more optimistic
• There were further signs of weakness in the US housing market as new construction suffered its steepest fall since 1984.
• Some commentators suggest that the bullish recovery to date has been too strong and that stocks specifically within the energy and industrial sectors that have posted larger returns so far this year may be set to slide back

EUROPE

• ECB increased interest rates at the start of April and left the door open for further moves in the coming months, despite the sovereign debt crisis, leaving peripheral nations such as Greece, Portugal and Ireland in deep trouble
• A strong second half of the month ensured European equities had their best month of the year so far. Solid earnings, which beat analysts’ expectations along with an increase in M&A activity helped boost equity markets
• Germany has remained at the forefront of the European recovery, although there are signs that the booming economy could be losing steam

ASIA & EMERGING MARKETS

• The Asia Pacific region performed strongly both in terms of economic growth and corporate earnings
• Strong gains were made in Korea and Taiwan which offset underperformance from China amid concerns about recent inflationary developments in China. Estimates for 2011 inflation in China have increased from 3% three months ago to 4.5% now
• Classic drivers for Emerging Markets were positive; oil and commodity prices increased. The US dollar hit new lows
• Inflationary pressures are becoming an increasing concern
• Latin America was the weakest performing region for the second successive month.  Although certain regions have strengthened, Brazil’s fall in equities dragged the index.  In an attempt to combat rising inflation, Brazil’s Central Bank increased interest rates to 12%
• Emerging Europe saw strong gains with double digit returns registered in Hungary and Poland. The Czech Republic and Turkey also recorded healthy gains while Russia was flat despite higher oil prices

JAPAN

• The prolonged power shortages and supply disruption are posing difficult issues for policy makers.  Previously the biggest problem was a lack of demand, but now, with the crippling distribution and manufacturing problems following the earthquake and Tsunami, supply shortages are emerging as the main problem
• The Bank of Japan made no change to its interest rates
• The Bank expects the Japanese economy to rebound once rebuilding gets underway and power supplies get back to normal.
• Unlike the situation during the global financial crisis, economies elsewhere are growing, meaning that international demand for Japanese goods remains solid

FIXED INTEREST

• Core Government Bonds rallied in April, more than regaining the ground lost in March
• Both US Treasury and UK gilts were boosted by a mix of mediocre economic news and an appetite for the safe haven bonds offer
• Corporate bonds marginally outperformed government bonds and the spreads for corporate  relative to Government Bonds still remain attractive
• Yields are falling so look less appealing in absolute returns, with many experts forecasting “coupon like” returns for the sector
• Multi manager investors are showing a preference for funds which include some equity exposure

Investment Seminar Feedback

Teleconference with James Harries

• Inflation is becoming an issue in the developing World
• They are maintaining a cautious stance as many structural problems remain
• They are continuing to focus on strong sustainable companies who can grow their dividends
• They like the healthcare and telecoms sectors. They also feel that utilities are looking more attractive than in previous years.
• The fund is underweight in consumer led sectors such as banking and retail.

Newton feel that in an uncertain market dividend yield will be invaluable and they are expecting income generated from the fund to grow steadily from last year.

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Conclusion