December Newsletter
Investment Performance Improves!
October 2011 saw a particularly useful rally in the markets on the back of the hoped-for good news from Europe and the overall feeling that politicians, generally, would get on top of the problems.
However, the realisation, in November 2011, that the politicians were still bickering and that the Regulators were still having great difficulties led to an enormous amount of market suspicion and, ultimately, a sell-off in virtually all markets, and the sentiment changed rapidly.
During the course of week commencing 28 November 2011, the European politicians and, in particular, the European Central Bank, the International Monetary Fund and Central Banks virtually throughout the world agreed on a strategy which, although exceptionally overdue, did allow sentiment to recover a little, and we have seen a very useful rally towards the end of November 2011 and the first few of days in December 2011.
Of course, we have not even started to “move out of the woods” yet, but sentiment will run a lot more positively if it can be demonstrated that the European Community is working as one and that the Euro itself will not be abandoned.
China
China has liberalised a number of its fiscal restraints and has demonstrated its desire to resume its relentless growth pattern whilst, at the same time, freeing up the entrepreneurial community so it can contribute towards creating more growth and more stability within the country.
Although China has seen a useful rally, Chinese inflation and its continuing issues with commodities (especially water and food commodities) leaves a big question as to whether it will be able to maintain its ongoing growth in such a way as to encourage new investment into the country, particularly as the property bubble has yet to burst.
For the moment, it would appear that China is starting to make a slow and, maybe, very deliberate recovery.
India
India has had, perhaps, its worst year since we have been investing in that country and we have seen approximately thirteen consistent monthly interest rate hikes - primarily, to slow down the pernicious effects of inflation, but also to stabilise its banking and financial sectors.
The general feeling is that India will take much longer to show signs of recovery and the fiscal tightening that has taken place will, we suspect, not be relaxed until a change of government and, possibly, another six to twelve months of restraints.
Nevertheless, India (like China) will become a financial engine of the world and it would be inappropriate not to have meaningful holdings in this country.
Brazil
South America has had a very difficult period, because (like India and China) it has experienced inflation problems - particularly as the demands for the products that Brazil provides (mainly commodities) has grown enormously, which has fuelled some very unwelcome inflation.
However, Brazil has recently instigated three interest rate cuts. This, in itself, will not be sufficient to completely restore confidence in the area, but it will be enough to stimulate the South American markets and to attract monies back into an area that (like China and India) needs to have sustainable growth.
USA
Nothing much is going to happen in the USA until the Presidential Elections are over; however, the in-fighting and bickering that is taking place is certainly not helping to improve sentiment or adding any serious momentum to the world recovery.
It is unlikely that the USA will do anything other than, perhaps, lead from a distance and, although this is still the largest economy in the world, it will not be many years before we are unable to say that. Moreover, the Americans are very mindful of China’s and India’s positioning and its entrepreneurs want to exploit the opportunities that exist.
However, they need to be able to do this on a commercial basis - which means borrowing money - and, as long as banks are either unable or unwilling to lend, this will slow the recovery story for some time to come.
UK
Here, we have seen some rather interesting developments. The general sentiment in the market is that the UK is a much safer place to be invested than, perhaps, anywhere else in Europe. Although we have massive unfunded long-term debt liabilities, these are dwarfed by the size of the problems in Germany. Despite the fact that Germany has a very effective manufacturing base, our financial services sector has helped to buoy up our economy and, even though we believe we are in a recessionary period (regardless of what the statistics tell us), it is more likely that the UK will benefit from the uncertainty that exists for two reasons:
- we have our own currency
- unlike the Euro, we have a Central Bank that can print money (although we suspect the Europeans will be printing some soon).
In addition, George Osborne has stated that the austerity measures that the Coalition has put in place must continue and, generally, we agree. Nevertheless, it is anticipated that political/social unrest will continue and the ever-increasing unemployment figures, together with inflation, will certainly not help the position here.
However, the investing world suspects we are in a better position than our European neighbours and, on that basis, we anticipate the UK will be the recipient of much foreign cash purchasing our Treasury Stock and UK-based Stocks in Sterling.
If we are correct, this will give the stockmarket in the UK a much-needed boost and may create opportunities for modest growth.
Gold and Precious Metals
Gold and precious metals, generally, have suffered over the last three months, although there are now signs that the recovery in both the mining sector and the precious metal sector is underway. As this is an exceptionally good time of year for precious metals, due to Christmas and the Festive Season, we are likely
to see gold prices throughout the world rise because of increased demand.
We still believe that, long term, this is an important investment in terms of maintaining balance in a portfolio with an asset that cannot be printed into existence.
Energy
The biggest potential single threat to the recovery we have just discussed may well be energy prices.
If we see an oil price spike in the not too distant future, this would be a serious headwind for the recovery which, at present, is exceptionally fragile.
Finally, we would like to wish you and yours an enjoyable Christmas and a happy, healthy and prosperous 2012.
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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