Weekly Market Comment, Monday 17th January

Jane.Kotchkina

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Monthly Economic & Market Update January 2011 Authors- Graham Frost Jane Kotchkina Market Overview Markets had a very strong close to 2010. Worries over Irish debt problems spreading to Spain and Portugal and a Chinese hard landing were forgotten. Instead investors focused on growth prospects and robust corporate profits. Economies remain in expansion though growth is slowing and we expect low growth and contained inflation for some years as austerity measures kick in. The exception to this is the US, which continues to promote growth irrespective of the debt burden future generations will face. The result of all this is that rising inflation is more likely and as a result bond prices, led by government bonds, are falling and yields rising. Equities can enjoy this environment for some time or until short term interest rates rise sufficiently to harm growth prospects. Corporate sector spending appears to be rising as firms become more confident. This was our precondition for continued growth as it offsets austerity measures in many countries. Emerging markets remain in expansion but high inflation rates are forcing cooling measures. China and India have started hiking interest rates to levels that may cause their markets to stall. Stock valuations are no longer cheap but real yields remain attractive relative to zero deposit rates and low bond yields. In the UK, housing market stability will be ...

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• Publié par: Juviz
• Nombre de lectures: 16
• Langue: English

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Monthly Economic & Market Update Januar 2011 Authors Graham Frost Jane Kotchkina Market Overview Markets had a verstron closeto 2010. Worriesroblems s readinover Irish debtto S ain and Portu aland a Chinese hard landinwere forotten. Instead investors focused onrowth rosects and robust cororate rofits. Economies remain in expansion thouh rowthis slowin andwe expect low growth and contained years as austerity measures kick in. The exception to this is the US, which continues toinflation for some enerations will face. The result of all this is that risinof the debt burden futureirres ectiveromote rowth rices, led bovernment bonds, are fallinand ieldsrisin .inflation is more likeland as a result bond E uitiescan eno thisenvironment for some time or until short term interest rates rise sufficientlto harm rowth rosects. Cor orate sector s endina earsto be risinas firms become more confident.was our This recondition for continuedrowth as it offsets austeritmeasures in mancountries. Emer inmarkets remain in ex ansion but hi h inflation rates are forcincoolin measures.China and India have started hikin interestrates to levels that macause their markets to stall. Stock valuations are no loner cheabut realields remain attractiverelative to zero deosit rates and low bondields. In the UK, housinmarket stabilitwill be critical in maintaininconsumer confidenceas even unemployment stays high. Worrisome inflation could cause interest rates to rise earlier than expected. A tight fiscal situation for several years will continue to encourage UK investors to diversify overseas into oun ereconomies. ressure in the short termto remain underare likelbond ricesCor oratee overnmentdue to lar borrowin inbonds are reasonable still due to low defaults and a decent income cushion.h ieldH1. Hi Volatilit islikel toremain hih becausethe worrisome issues of 2010 remain unresolved. Althou h hed efunds had aoor earwe believe exosure remains advisable to reduce risk. Commodities are likel to trend sidewas from here as sul resonds to demand. UK commercialro ertdemand is imrovinand riceshave stabilised but rents remain weak. Yields are fair but capital gains are done. Chart of the Month: Festive cheer in December for MSCI World. Source: Lipper Bestinvest Brokers Ltd. is an Independent Adviser authorised and regulated by the Financial Services Authority.

January 2011 North America, UK and Europe ƒUS Federal Reserve committed to buying £380bn of bonds in the second round of quantitative easing. ƒBank of England kept interest rate at 0.5% in December – the lowest rate on the record maintained for 21 months. ƒBritain’s GDP for 3Q10 was revised down to 0.7% from 0.8% year on year. ƒUK Consumer Price Inflation rose to its six months high - 3.3% in November, mainly due to rising food and clothing prices. ƒUK Retail Price Inflation spiked by 0.2% to 4.7% in November from 4.5% in October. ƒBritain’s unemployment rose to 7.9% in October. ƒUK house prices fell by 0.1% in November from the previous month according to Halifax, with property prices being 0.7% less than a year ago. Nationwide Building Society estimate the price fall from October to November at 0.3%. ƒEuro area inflation rose to 2.2% in November from 1.9% in December. ƒEuropean Union leaders agreed to put together a new rescue fund which will become active in 2013 in order to prevent debt issues of single Euro members affecting the single currency. This project will succeed the European Financial stability fund. ƒGermany’s unemployment rate remained unchanged at 7.5% in December. ƒIrish GDP grew by 0.5% in 3Q10. ƒIrish sovereign credit was downgraded to Baa1 from Aa2 by Moody’s, after Fitch reduced its rating from A+ to BBB+. Chart: Major developed country equity markets. Source: Lipper Source: Thomson Reuters (quoted in FT) st Returns over the last 6 months (to 31December 2010) denominated in local currency S&P 500, PE= 15.8, yield= 2.3% (ex loss makers) UK equity market, PE= 15.4, yield= 2.8% DJ Euro Stoxx 50, Dax as proxy PE= 13.8 yield= 2.9% (ex loss makers) (Country yields and PEs relate to a sample of stocks that cover at least 75% of each market’s capitalisation and are denominated in local currency) Japan, Asia Pacific and Emerging Markets ƒJapan’s export grew by 9.1% in November compared to a year ago. ƒJapanese consumer price inflation rose by 10bps in the year to November. ƒJapan industrial production grew by 1% during November, the first increase in six months. ƒChina’s consumer price inflation rose by 0.7% to the annual rate of 5.1% in November from the previous month. The CPI rate is at the highest level in 28 months. Bestinvest Brokers Ltd. is an Independent Adviser authorised and regulated by the Financial Services Authority.

January 2011 ƒPeople’s Bank of China increased its main base rate by 25bps to 5.81% in December, the second increase in just over two months. ƒTaiwan’s inflation fell by 0.2% to 1.3% in December from the previous month. ƒIndia’s wholesale price inflation rose by 7.48% annualised rate in November. ƒBrazil’s industrial production grew by 5.3% in the year to November. Chart: Japanese main equity market and MSCI’s Asian Index including all Asian countries ex Japan. Source: Lipper Source: Thomson Reuters (quoted in FT) st Returns over the last 6 months (to 31December 2010) denominated in local currency Japan’s equity market, PE= 15.2, yield= 1.9% (Country yields and PEs relate to a sample of stocks that cover at least 75% of each market’s capitalisation and are denominated in local currency) Commodities ƒOil price in USD terms rose by 12.5% in December. increase breaking 1400 USD per ounce towards the end of the month.Gold pr ƒice continued to ƒAgricultural Commodity index rose by 7.5% in December. st  31December 2010% change on 6m Nymex Crude Future USD94.5 (75.6)25% Source: Bloomberg, Lipper. Dated Brent Spot USD24.8%94.23 (75.5) Gold USD (Mid)1414.25 (1246.8)13.4% S&P GSCI (Goldman Sachs Commodity Index)*631.8 (495.1)27.6% S&P GSCI NonEnergy Index*475.9 (327.9)45.1% S&P GSCI Agriculture*510.6 (300.9)69.7% *Spot index value. Price 6 months ago in brackets. S&P GSCI is heavily skewed to energy at roughly 70% to 75%. Bonds ƒSterling corporate bonds and UK gilt prices fell marginally in December. ƒprices rose by 2% during the month as yields fell supported by the festive cheerHigh yield bonds in the equity markets. Bestinvest Brokers Ltd. is an Independent Adviser authorised and regulated by the Financial Services Authority.

January 2011 Chart: Fixed Interest Markets Source: Lipper st  (to31 December2010) FX ƒUK pound sterling fell by almost 3% against both the Euro and the Yen in December. ƒSterling strengthened marginally against the USD during the month.  Chart:Currency Returns Source: Lipper st December 2010) (31 Hedge ƒHFRX Global Hedge Fund index grew by 2% in December. ƒEquity Hedge was the best performing hedge fund strategy rising by 4.3%. ƒEquity Market Neutral was the only strategy that lost investors money during the month, falling only marginally by 17bps. Bestinvest Brokers Ltd. is an Independent Adviser authorised and regulated by the Financial Services Authority.

January 2011 Source: Lipper Source: Bloomberg

Chart: Hedge Fund Returns

st  (to31 December 2010) Property ƒYear to day UK commercial property made a total return of 13.5%. ƒMonthly capital growth in UK commercial property was only marginal for the second month in a row in November. ƒCentral London offices and retail have the most attractive prospects at present. Chart: Property Returns

th  InvestmentProperty Databank TR, last 6 months (to 30 November 2010)* *Index data is released mid-month and therefore figures are only available with a one month lag.

Bestinvest Brokers Ltd. is an Independent Adviser authorised and regulated by the Financial Services Authority.

January 2011 Source: Lipper

Market Returns

S&P 500 TR FTSE All Share (X It) TR FTSE 100 TR Dow Jones Euro Stoxx 50 NR FTSE EuroTop 100 TR Topix TR MSCI AC Asia Pacific ex Japan TR MSCI EM (Emerging Markets) TR FTSE Small Cap (X It) TR HSBC Global Mining TR

ML Euro Cur HY Constrain TR GBP Hgd ML Sterling Corporate Bond TR

FTSE APCIMS/Balanced TR FTSE APCIMS/Growth TR FTSE APCIMS/Income TR

US Dollar Euro Japanese Yen

1m 6.12 7.16 6.81 8.04 7.5 7.36 6.23 6.58 8.71 11.53

3m 11.47 7.3 6.9 0.99 4.21 12.45 8.21 8.06 8.56 22.21

6m 17.79 22.06 21.61 14.4 17.8 12.41 21.58 21.22 21.21 41.87

1y 18.68 14.31 12.62 6.27 4.13 19.53 22.14 22.94 16.9 35.62

3yr 16.56 4.29 2.78 17.94 3.19 13 26.47 27.02 4.74 43.82

1.9 0.648.93 16.2842.13 0.12 2.652.73 9.4115.21

4.82 5.73 3.91

0.53 2.51 2.74

5.29 6.72 3.7

0.65 1.1 3.67

14.44 16.89 12.19

4.44 4.66 4.26

12.51 13.43 11.4

3.14 3.56 18.39

8.51 7 10.83

27.14 16.66 75.13

5yr 22.8 28.22 26.26 13.48 27.16 5.71 99.32 103.02 3.93 170.46

56.61 17.06

26.15 26.3 25.87

9.65 24.71 59.57

LIBOR GBP 3 Month0.06 0.19 0.370.7 7.9720.17 Gold Index GBP1.46 8.678.4 29.37114.68 199.65 th  (to 30December 2010 in GBP. Currency movements are vs. Sterling.) The contents of this document are intended as general economic and market commentary and should not be read as specific investment advice. If you would like specific advice appropriate to your personal circumstances and financial objectives please call our advisers on 020 7189 9999.

Bestinvest Brokers Ltd. is an Independent Adviser authorised and regulated by the Financial Services Authority.