• Despite the FTSE All Share being one of the best performing indices during August it still registered its worst performance since 2008.
• Negative global news dominated investor sentiment. Concerns over weak economic growth and the Euro sovereign debt crisis resulted in significant volatility, which meant that positive corporate news was overshadowed by indiscriminate selling.
• Corporate news was more positive; the price of Unilever shares rose over the month after posting higher sales and profits following strong growth in emerging markets. 
• The pharma sector also benefitted from good news – the US pharma giant Pfizer won a patent case which has important financial implications for the whole industry
• Disappointing news from BP with an announcement from Exxon Mobil that they had secured what looked like the same Artic and exploration deal which BP thought they clinched back in January.
• Interest rates remained on hold for the 29th month in a row – the lowering of the global growth forecasts saw the vote split move to 9-0 in favour of no change.

US

• The combined indices of the S&P 500, Dow Jones and Nasdaq had their worst August since 2001.
• Bad news on manufacturing, inflation, employment and housing added to the fears of an impending recession. Manufacturing activity unexpectedly fell sharply in August and food and fuel costs drove up inflation.
• Energy and financials saw the biggest falls over the month. As risk aversion rose, investors moved towards companies with higher dividend yields and defensive sectors such as utilities.
• Ben Bernanke remained open to further policy action but indicated that economic data had not yet deteriorated sufficiently to warrant further QE.
• Despite the weakening economic data and equity markets pricing in a recession, corporate balance sheets are healthy.
• Companies have significant cash on their balance sheets and in a low growth environment they are using M&A activity as a way of generating further growth opportunities.

EUROPE

• European equities suffered the worst month since 2008 as a result of continuing negative news flow from both sides of the Atlantic, combined with increasing concerns over Sovereign debt.
• Market volatility reached extreme levels which promoted financial regulators to ban short selling in France, Spain, Italy and Belgium.
• Germany’s Dax index fell most during the month registering a fall of 19% and suffering its biggest one day decline in 9 years.
• Given that Germany had strong Q1 results, analysts were taken by surprise a stall in the German economy. Data released showed growth of only 0.1% in the second quarter.
• In a bid to ease the sovereign debt crisis, Chancellor Merkel and President Sarkozy held a summit in Paris which backed plans for all 17 members of the monetary union to write balance budget clauses in their constitutions by next year. There does not appear to have been any significant progress on increasing the size of Europe’s bailout fund. This is strong opposed by German taxpayers, who feel they will have to pick up the bill for the problems in the weaker Euro economies.

ASIA

• Asia was not immune from the fall out over worries of slowing growth and there is no doubt that the global macro concerns have dampened sentiment.
• Growth estimates are falling - India’s Q2 GDP is growing at 7.7% year on year compared with 8.2% a year ago.
• While China’s exports slowed, corporate results remained robust. Commentators anticipate that inflation should be near its peak. If this is correct, it should help investor confidence.
• Domestic demand in Australia appears to have “hit a wall”. Very high levels of personal indebtedness make Australia look rather like the US or UK in some respects.

EMERGING MARKETS

• Emerging Markets experienced a turbulent month on signs of slowing growth.
• The strongest performer was Latin America boosted by positive returns in Peru following an upgrade in their credit rating.
• South African markets were also strong as a result of record gold prices.
• Turkey was the weakest marked followed by Russia. Interest rates in Turkey were cut to a record low of 5.75% however concerns over the country’s current deficit still dampened investor sentiment.
• Fears that weaker global growth could reduce demand for oil and gas pushed energy prices lower which undermined confidence towards Russian equities. 

JAPAN

• The Japanese equity market declined in line with global markets which reversed the gains made as a result of the supply chain being restored earlier than expected following the earthquake and Tsunami
• Prime Minster Kan was replaced by the former Finance Minister, Yoshihiko Noda. Mr Noda has conservative views favouring tax rises to help reconstruction efforts and to reduce Japan’s significant sovereign debt.
• With quarterly reporting completed, the emerging theme shows positive earnings and post earthquake uncertainty is being replaced by greater conviction in the prospects for corporate profits.

FIXED INTEREST

• Concerns over the global slowdown and sovereign debt crisis continued to drive sentiment. 
• The widespread volatility increased the move from risk assets which led to a strong rally in core Government Bonds.
• In times of risk aversion, corporate bonds tend to underperform government bonds, but credit markets benefit from good company results and yield spreads relative to Government Bonds are attractive.

Investment Seminar Feedback

• Newton’s house view is that they do not foresee a rise in interest rates for some time, at least not until this time next year.
• They continue to invest in “dull and boring” companies that pay attractive dividends and will survive the slowdown but are being ignored by the market
• Good dividends will continue to play an important role in a low return world
• It is a good opportunity to globalise portfolios to benefit from where the opportunities lie. They continue to avoid UK and US domestically orientated companies.
• The geographical breakdown of their funds is as a consequence of stock picking. They do not like US or European markets, but invest in both Coca Cola and Nestle, as the majority of sales from outside the US and Europe.
• Newton have made an announcement that they are cutting the dividend on the Higher Income Fund.
• This decision has not been taken lightly but the realisation is that not all companies will be able to continue to grow dividends and a lower dividend payment increases investment flexibility.

Conclusion