January Newsletter
We have seen a significant bounce in performance in a number of UK stockmarket indices since late November /early December 2011. This is due, primarily, to sentiment change towards the UK and the uncertainty that exists in Europe.
The UK still remains, in many offshore investors’ eyes, a safe haven and will continue to do so for as long as the political and tax offerings from London continue to be attractive to investors.
We anticipate further uplift in the UK, possibly to a point where markets could return to the highs of a year ago. This will take the FTSE 100 from around 5700 up to approximately 5900; however, as always, “there is many a slip twixt cup and lip” and the path to recovery is fraught with danger.
USA
The USA has become the investors’ choice over Europe and even the Emerging Markets sectors. USA consumers are spending money (and are starting to borrow money again) and, generally, we believe the feel good factor will remain with this particular market throughout 2012 during the run-up to the Presidential election, with US markets continuing to trend slightly upwards until the election is over.
Commodities
Oil
The biggest risk, over the next twelve months, is the problems emanating from Syria and Iran and, if oil prices start to spike, that will be a major headwind for all markets which could, possibly, lead to a further recessionary trend and a bear market.
It is very difficult to be sure what will happen here, as this is a massive geo-political problem and will very much depend on the willingness of the Arab nations to deal with the Syrian and Iranian problems.
Precious Metals
Gold and silver continue to provide safe havens for investors and we anticipate that further upward movements will take place this year, as the US Dollar will probably start to show weakness in the third and fourth quarters.
Other Markets
South America
Brazil is probably one of the most important countries in the commodity belt. We have seen a desire by the Brazilian government to stamp out fraud and related issues, and also a massive demand for the products and commodities they produce. It is one of the world’s largest exporters of soya, water, fruit and vegetables and is responsible for most of the timber that is used throughout China and India. We anticipate this being a positive market in 2012.
China
China’s inflationary issues, together with its concerns over the effects of Europe, impaired its performance in 2011. However, since the beginning of this year, we have seen interest in the Chinese markets resume and a fairly serious bounce-back since late December 2011, with the trend continuing upwards.
India
This is, perhaps, the greatest of all our concerns insomuch as the Indian Parliament recently decided it would not address the corruption and fraud that dominates the political backdrop in India. Furthermore, it has also given fairly serious indications to the rest of the world that it does not plan to allow foreign companies to come and trade in its food retail sector.
These two indicators alone are of concern and we will be monitoring this situation very closely over the coming weeks.
Bonds
The Sovereign stockmarket has continued to show strength throughout 2011 and has started 2012 in much the same way, although we are now seeing sideways trending in some of the shorter-dated UK gilts.
This particular market will continue to show strength until we reach a point where a higher level of confidence re-appears for investing in world equities. This confidence is very much dependent upon the politicians in Europe not only showing signs they have a willingness to solve the problems, but also having, at least, some harmony in terms of the very difficult decisions that need to be made.
We have serious concerns that the European politicians will not undertake this quickly enough (as demonstrated in the past) and, although it is unlikely that any country will be expelled from the Eurozone, it is extremely likely that this particular sector will struggle throughout 2012, 2013 and even 2014.
Outlook for 2012
Despite ongoing concerns over the ability of governments in south Europe and the USA to gain control of their borrowing requirements, there is scope for a degree of long-term optimism about equity markets.
A number of markets are significantly undervalued compared with their long-term trend, representing attractive buying opportunities. Furthermore, with deposit rates continuing to remain low and not keeping pace with inflation, some market sectors are more likely to offer the potential to outperform inflation. We do, however, expect to see volatility in the short term.
NOTHING CONTAINED IN THE ARTICLE SHOULD BE CONSIDERED AS GIVING INDIVIDUAL FINANCIAL ADVICE. THE VALUE OF INVESTMENTS IS NOT GUARANTEED AND WILL FLUCTUATE. YOU MAY GET BACK LESS THAN YOU INVEST. PLEASE NOTE THAT THERE MAY BE VARIATIONS FOR THOSE LIVING IN SCOTLAND AND NORTHERN IRELAND.
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