Investment Market Commentary

12th May 2009

Since our last update in February there has been a small but positive overall movement in World Stock markets, with the majority of these increasing in value slightly. This does not mean that we are on the road to recovery, far from it, and the economic issues that we did have are still very much with us. The G20 summit held in London recently provided a boost to markets for a short period of time, before realisation that the main issues within economies, namely debt, unemployment, consumer confidence had not gone away. The general feeling is that the economic recovery is still some time away and that there is little to encourage us that it is going to happen in the near future.

We recently ran two client seminars, one hosted by BlackRock and one by Fidelity, both of which were very interesting and the feedback from clients was positive. We will be holding more of these seminars later in the year and will forward details when they are available.

The general view from both BlackRock and Fidelity was that for the longer term investor ( 5 years plus view ) markets at the moment will probably represent good value, and I mentioned this in my recent mailing about end of tax year ISA’s. For those of you that have the spare cash and plan to do an ISA for 2009/10 then I would encourage you to make the investment sooner rather than later.

Another investment theme that came out of these seminars was the importance of asset diversification. I mentioned this in my last commentary and would encourage you to make contact with us to review your asset allocation and make sure your portfolio of investments is positioned correctly. I have said that I am watching commodities and will recommend a buy at some point, but the price of Gold has fallen recently and there could be more opportunity in this sector in the near future, hence I have not issued any buy notices.

In the last couple of weeks we have recommended a switch out of Liontrust First Growth into Newton Income, because the manager left Liontrust. There are more funds that we are watching at the moment and it is likely we will recommend more switches in the coming weeks.

Market Update

The main event of the last couple of months was the G20 summit, as already mentioned. Although this will have no immediate effect on markets the agreement on a number of measures that will help prevent another financial crisis, through tighter regulation, is to be welcomed. There was also a commitment to treble the resources to the IMF to $750 Billion which will help out vulnerable emerging economies in the future, as well as $250 Billion pledged to support trade finance.

Interest rates continue to be slashed, and in the UK are now down to 0.5% which is the lowest they have ever been. It is hoped that this will ease debt burden and encourage consumer spending but there is little evidence to show this policy is working at present. It seems that what is happening is that consumers are paying down debt or saving money as opposed to spending it, which is what an economy needs.

The UK Government recently held a Gilt auction which was not fully subscribed for the first time in many years, and this is quite rare. Usually it would be taken up by institutions but with the Government printing money and having to raise more in the future it was felt this issue was unattractive. This makes me feel that Corporate Bonds will continue to offer more value than Gilts which is what I have been saying for some months, and we have seen an attraction of funds towards the Corporate Bond asset class. The slashing of interest rates and the printing of money will mean that inflation will increase in the future. This will be a concern but not for a while yet as the current issues are far more important. Companies in the UK will continue to struggle with more Rights Issues being announced and also more cuts in dividends as they are forced to take a more cautious approach.

The issues across Europe are no different to elsewhere around the globe, and we have seen our fair share of bad economic data which has been pouring out from the media. However, since March there have been some signs that industries are stabilising at their current low levels. Markets appear to be regaining some traction and footing which will hopefully go some way to stimulating investor confidence in the near term which should result in consequential investment. Having said that it was interesting to note that the MSCI World Index, which gauges the performance of the worlds 23 developed countries equity markets, has rebounded 26% since March, after its worst ever start to a calendar year. Banking chiefs in the US are also starting to talk about revenues and earnings as opposed to balance sheet risk after some of the major banks including Goldman Sachs and Wells Fargo & Co reported first quarter earnings exceeding even the most optimistic expectations. Other major banks have also followed suit with some good earning reports and with lesser numbers of ‘bad loans’ accruing things seem to be looking a little more optimistic.

Asian Equity markets have risen in the last month on hopes that fiscal stimulus plans and low interest rates will help markets; however the economic backdrop remains difficult, with exports under pressure across the region. Positive signs include the Chinese government announcing that industrial production had picked up significantly and that they are confident that the economy’s 8% growth target for 2009 is within reach.

Future Strategy

For the first time in about 9 months I feel slightly more optimistic about markets. I am not saying that it is all going to get better in the next few weeks, but there is a trend on news flow not being as negative as it was. The banking sector has had better than expected profit announcements from Goldman Sachs etc, and most commentators are telling us that this is not a flash in the pan. Also, Emerging Markets ( China ) are actually announcing some growth in areas of the economy, again not all positive, but importantly not all bad. Markets have probably priced in a lot of the bad news, so I do not expect them to fall a long way from where they are currently, unless something surprising happens, or the economic news continues to be bad or unexpected.

Markets will recover at some point and when they move it is likely to be quickly, so you should make sure that you have some market exposure, but this will come down to your attitude to risk. It may well be a good time to review your attitude to risk and if so please contact me.

If you are planning to make a 2009/10 ISA contribution, then I would advise you to contact us and do this now, as I believe that if you are prepared to take a 3 year plus view markets look decent value. If you have other money that you can invest and are prepared for it to be tied up for 3 years plus then you should talk to us about it.

Market Statistics

If you have any questions or comments please contact us on 020 7324 6030.

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