Market Commentary March 09

30th March 2009

The last 3 months have continued to bring a steady flow of bad news and poor economic data, and it is difficult to find positive things to talk about when we seem to be under such a black cloud. The performance of markets over the period has at least been better than the previous 3 month period which saw big falls in all sectors. Most sectors have seen small falls or small gains over the last quarter, and until the last week it appeared that markets had stabilised. Unfortunately the end of last week saw markets fall again close to their 12 month lows.

Most clients are longer term investors and understand that markets are cyclical, but confidence has been hit very hard in the last 12 months and it is difficult to see the positives. I decided to look at some 10 year performance figures to see how some of our long term hold funds had performed. I selected 5 funds and have listed their performance below:

• Invesco Perpetual High Income         110%
• Fidelity Special Situations                156%
• Fidelity European                             141%
• Aberdeen Emerging Markets             218%
• First State Asia Pacific Leaders        307%

You can see that the funds have performed very well even given the last 12 months, and it shows that holding good fund managers over the long term pays off.

I have not sent out any buy notices recently, except for my advice to consider Corporate Bonds, but I do feel strongly that you should look to invest in your annual ISA and that this should be arranged with us as soon as you can. I also feel you should invest in next year’s ISA as early as possible. Market levels for long term investors look attractive, and by dripping some money into investments via your ISA would be sensible.

Market Update

After the small rally in UK equity markets over December and early January the UK market fell back with the FTSE 100 hovering around the 4100 mark. It has subsequently fallen again to below 4000. The Government has continued to sink money into the banks and are likely to increase their holdings in both RBS and HBOS, leading to further nervousness amongst investors. As well as the banks many of the Real Estate companies are looking for cash and have announced rights issues in the past weeks. Interest rates have been slashed to 1% in the UK and it seems likely that they will fall further than this, with the MPC suggesting zero rates in the future. This is a measure to try and avoid a prolonged recession, which many commentators feel is inevitable. Inflation is falling and job losses have increased, at the same time the Government is printing money and this will inevitably lead to a sharp increase in inflation at some point, but I cannot see that happening in the next 12 months.

Europe has struggled with inflation, plunging to its lowest level for 10 years, so increasing the likelihood of interest rate cuts. Unemployment has risen across all areas, with Spain rising to 13.9% unemployment in December. Germany in the meantime has opted for a fiscal stimulus package worth 60 Billion Euros to help bolster the economy.

President Obama has now been sworn into office and he immediately unveiled an $819 Billion package to help the economy. Interestingly it was pushed through Congress without a single Republican backing it. All US markets fell heavily in January on the back of poor economic data and corporate earnings. US GDP shrank by 3.8% in the 4th quarter 2008 which was the biggest fall since 1982. The housing market is still of major concern with house building very slow, and the lowest ever recorded figure of new single family homes being sold in December. Investors are concerned that plans are still to be finalised as to how to deal with toxic assets linked to US housing. The car industry is still in trouble with General Motors and Chrysler still asking for more money to help keep them afloat. The same is true on Wall Street with AIG and Citigroup taking Government money. The US Government will end up owning about 40% of Citigroup and it already owns 80% of AIG.

Asia has had the same issues as elsewhere with the economic backdrop remaining difficult and leading indicators deteriorating. China’s GDP fell to 6.8% year-on-year in the fourth quarter, taking growth for 2008 as a whole to 9%, against expansion of 13% in 2007. Japanese equities rose to a two month high in early January after optimism surrounding international government stimulus plans. However, the market’s brief bounce was soon derailed by further poor economic and corporate newsflow. The Bank of Japan underlined the difficult economic conditions by confirming that all 9 of Japan’s regional economies deteriorated in the fourth quarter. The central bank has downgraded its economic forecasts for the fiscal years to March 2009 and March 2010, to -1.8% and -2.0% respectively.

Future Strategy

It is important that we learn from both the market and economic conditions of the last 12 months, and act accordingly. I think it is very clear that a balanced portfolio with diversification is very important. A portfolio needs to be diversified through Asset Class and not just through Geographical region. I would therefore advocate that you speak to us about a full review of your finances and check your portfolio is positioned as you want.

I have been watching the commodity market closely and two funds in particular with the view to buying these funds when the price looks attractive. Holding commodities in a portfolio can work as a natural hedge against equity investment. As well as commodities I have sent buy notices out about Corporate Bonds which I feel still have value and also Absolute Return funds which should be used as part of a long term investment strategy in portfolios.

Market Statistics

If you have any questions or comments please contact us.

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