Market Round Up

UK

• The prospects of a hung parliament or a dip back into recession are adding an extra degree of uncertainty into an already volatile environment.
• Worries over Britain's huge budget deficit and generally poor economic data dampened market sentiment over the last month and led to a bout of sterling weakness.
• There was an unexpected rise in unemployment, with the number of people receiving jobless benefits climbing to the highest level since the Labour Party came to power.
• Despite the poor outlook for the economy, the UK stock market is very international with strong brands which are currently offering attractive valuations. Fund managers are mindful of the significant proportion of UK company earnings which come from overseas.
• Interest rates were kept on hold again with little expectation of a rise next month. Base rates have now been at 0.5% for a year.

US

• US economy continues to recover but there are still concerns that growth will stall once stimulus is withdrawn.
• Ben Bernanke spoke last week of interest rates remaining low for an extended period and a rise in unemployment benefit claims.
• Anxiety has mounted within the US that ballooning government debt would derail their recovery.

Europe

• Problems in Greece continue with concerns over a possible downgrade of their credit rating.
• Fund managers have mixed views on Europe with some maintaining an optimistic outlook, while other still remain cautious and feel that the Euro will weaken further.

Asia & Emerging Markets

• Asian Markets eventually recovered at the end of February having had a turbulent time. The recovery came after better than expected news on Chinese Inflation and data showing a rise in jobs growth in Australia.
• China continues to grow at a strong pace but the government wants to rein in credit to control "bubbles" which are forming in some sectors of the economy. 

Japan

• Concerns over the impact of the recall of Toyota's cars on its earnings knocked the market in early February and the situation worsened on falling prices for commodities.
• There was however a good deal of positive economic data over the month. Japan's GDP expanded by 4.6% in the fourth quarter, helped in particular by strong demand from Asian markets. Consumer confidence also improved and exceeded expectations for the first time in four months in December, although the number of pessimists continued to outnumber optimists.
• However, worries that deflation would remain a persistent problem for the economy, and that China's move to cool its recovery, plus the strong Yen, would hinder demand for Japanese exports weighed heavily on Japanese equities late in the month.

Fixed Interest

• Fixed interest markets rose and even gilts produced a positive return.
• Some fund Managers are now showing minimal investment grade exposure in their portfolios and are moving towards high yield bonds.
• As corporate cash flows and balance sheets grow stronger, it is felt that the likelihood of defaults is diminishing. 

Investment Seminar Feedback

Meeting with Anthony Bolton of Fidelity

• Fidelity has launched a new China Special Situations Fund which is a fully listed Investment Trust with a benchmark of the MSCI China Index.  The fund will have a cap of £650 million and will become listed on 19th April 2010, but the 26th March is the latest deadline for receipt of applications for the initial offer period.
• Anthony has chosen a closed end fund to limit the amount of money being run. Price during initial offer period 100p (98.9 NAV after set up charges).
• Initial indications are that the fund will possibly go to a premium at launch.  AMC will be 1.5% of NAV with a performance fee of 15% of outperformance of the benchmark plus a 2% hurdle rate.
• Investments can be made in ISAs (for both the current and new tax years) or a share plan outside an ISA wrapper with £2,500 being the minimum investment in each case.  Special application forms have been printed as clients will be required to sign an additional declaration which sets out the additional risks of investing in the fund.
• The new fund will be run quite differently to the existing Fidelity China Focus Fund.  Anthony is aiming to bring a contrarian value investment approach and there will be high exposure to small and mid caps, but if Anthony doesn’t like a particular stock or sector he will avoid it completely. 
• Whilst Anthony is very excited about the investment opportunities he stressed that investing in the fund is not without risk.  China has a centrally controlled Government and this “control and command” economy can have a massive impact of businesses. Changes in legislation can be made overnight.  
• Anthony is committed to running the fund until 2012 and will be very involved in picking his successor at that time.

Conclusion

• A number of commentators feel that the biggest risk to markets this year will be the policy response from governments and central banks as QE measures are withdrawn and this could lead to an increase in volatility.   Although markets have come a long way since the lows of March 2009, volatility still remains a feature.

Date of Next Meeting:  12th April 2010