MARKET UPDATEUK- Over the month of November the FTSE All Share Index fell only 0.4% despite a run of nine consecutive days in negative territory, the longest period witnessed since 2003.
- The final few days of the month saw a strong rally as combined action from various central banks around the world helped to ease fears that the Eurozone credit crisis would spread further.
- The stock market paid little attention to the Chancellor’s Autumn Statement forecasting lower economic growth. GDP is now projected to be 3.3% lower in 2013 than it was forecast to be only back in March.
- There was slightly better news on inflation with CPI falling to 5% for October from 5.25% for September and RPI slowing to 5.4% from 5.6% in September.
- Although inflation remains above target, Sir Mervyn King expects inflation to fall back sharply in the next 6 months or so, and to continue to fall thereafter to around the target of 2% by the end of next year.
- As far as corporate news flow is concerned, Sainsburys announced a rise in first half profits of 6.6%, which is above market forecasts.
- Based on interim results Vodafone announced that they are projecting full year profits at the upper end of their previous forecasts. They highlight continued strong momentum in Emerging Markets such as India, where service revenue rose by 18.4%
US- Despite the worst Thanksgiving week for US markets since 1942, there was a strong rally in the final three days of the month as the Fed, along with the ECB and 4 other Central Banks took action in an attempt to “shore up” the global financial system.
- For the third quarter GDP growth was revised downwards to 2% from the previous estimates of 2.5%
- Rating agency S&P slashed the credit ratings of several US and European Banks including J P Morgan and Bank of America.
- There was positive economic data from the retail sector with retail sales rising by 3.7% which is the biggest gain for almost two years.
- Claims for unemployment benefit fell to the lowest level since April and the private sector added the most jobs in nearly a year. This could explain why consumer confidence rose to the highest level since July according to a survey carried out by the US Conference Board.
EUROPE- Increased volatility continued during what was another turbulent month for European equity markets. The ongoing Sovereign Debt crisis saw the Prime Ministers of Greece, Italy and Spain leave office.
- There was a strong rally towards the end of the month following the various World Central Banks’ action to lower the costs of dollar funding, which offset the majority of losses.
- The most resilient sector was healthcare while financials proved to be the weakest.
- Germany performed relatively well but Spanish and Italian markets lagged.
- Economic data revealed an unwelcome combination of high inflation and rising unemployment. At 3% for the third month running, inflation remains well above the ECB’s target.
- Unemployment for the Eurozone rose for the sixth consecutive month in October.
- Conditions continued to improve in Germany where unemployment fell. This is in sharp contrast to Spain and Ireland where the unemployment rates rose to 22.8% and 14.3% respectively!
ASIA & EMERGING MARKETS- The Hong Kong market suffered the largest falls, dragged down by the property and financial sectors. India and Taiwan also underperformed as production slowed.
- Concerns over Chinese inflation eased with CPI inflation for October at 5.5% year on year, down from 6.1% in September. The Chinese authorities announced that the required reserve ratio of commercial banks would be cut by 50 basis points. This was seen as a significant move to mark formal entry into a monetary easing cycle.
- The MSCI Emerging Markets Index fell by 6.8% - a sharper decline than was seen in developed markets. There was a rally at the end of the month in response to the World Banks providing cheap loans to European banks which helped to reduce further losses.
- Russia was considered a safe haven falling by just 0.4% and benefitting from higher oil prices.
JAPAN- Continued uncertainty about the global economic outlook and a strong Yen, which was a headwind for exporters’ cause, contributed to Japanese markets falling over the month.
- Economic data proved positive – industrial production has increased more than expected and consumer confidence remains positive as the post earthquake recovery continues.
- GDP grew by 1.5% quarter on quarter, which is equivalent to an annualised rate of 6% reflected in part by the restoration of the supply chain following March’s earthquake and Tsunami.
FIXED INTEREST- Despite the focus on sovereign risk, commentators believe the fixed income asset class still offers attractive investment opportunities.
- In Government Bonds, investor demand has increased for government debt of countries deemed to be ultra safe such as the UK, US, Canada, & Australia. With the ability to print money in their own national currencies, investors consider these bonds to have a lower default risk, but the low yields make them less attractive for generating an income.
- High quality corporate bonds can offer many of the characteristics once associated with sovereigns. Macro concerns have served to push up yields but this has occurred while company fundamentals have remained basically sound. In reality, many companies are now in a better position than their respective Governments.
- Emerging Market inflation-linked bonds offer attractive real yields; inflation is higher than in the West but this is likely to be more than compensated for by robust growth.
ConclusionAs we approach the end of the year, it is unlikely that 2011 will be remembered too fondly by investors! However, what does seem likely is that the European Sovereign Debt crisis has further to go and it is in nobody’s interest for the Euro currency to fail. Quite how the economic map of Europe will look next year and in the years ahead is impossible to say but, for the time being, the UK Government is sticking to its position of trading with Europe without being dictated to by Europe.
Ironically, as we have reported to everyone in the last few months, fund managers are seeing good buying opportunities in equity markets and, should the politicians and central bankers manage to come up with a credible plan to solve the crisis, we should see markets rise. Our central view is that a judicious mix of different types of asset is the best way to invest in current conditions, coupled with an understanding of how much risk is being taken within your portfolio. If you would like a review of your investments with these aspects in mind, please contact your usual adviser.
On behalf of the whole Fraser Heath team, we wish you a very Happy Christmas and a Prosperous New Year!
Date of Next Meeting: 19th January 2012 |
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