World Markets Stage a Recovery
Most - but not all - markets have experienced a fairly serious recovery during the month of January 2012, which has continued into the first week of February 2012. This recovery has, to all intents and purposes, been incredibly intense and we briefly summarise below how this has affected certain investment areas:
| Market | Period from | Recovery (Approx) |
| UK | The low of Aug 2011 to-date | 11% |
| USA | The low of Aug 2011 to-date | 22% |
| Energy | The low of Sep 2011 to-date | 16% |
| Newton Asian Income Fund | The low of Sep 2011 to-date | 13% |
| India | The low of Dec 2011 to-date | 20% |
| China | The low of Oct 2011 to-date | 26% |
| Emerging Markets | The low of Oct 2011 to-date | 20% |
| Latin America | The low of Oct 2011 to-date | 24% |
| Brazil | The low of Oct 2011 to-date | 25% |
Therefore, it is evident a considerable amount of recovery has been taking place, although many markets are still below their positions of a year ago.
UK
We have seen a fair amount of improvement in prices throughout the UK stockmarket, as stated in our January 2012 Newsletter. However, the UK is now beginning to appear slightly over-bought in the short term. We believe, however, the markets are likely to continue to enjoy, at least, another month or two of good performance (barring disasters).
Additionally, we may see the FTSE 100 return to its previous high of July 2011, which took it back up to 6000. We suspect, if that figure is attained, the market will then be ready for a consolidation, or possibly, a retrenchment back down to around the 5600 mark.
USA
The USA still appears to be in an uptrend and the effects of the Presidential election later this year, together with good performance reports and statistics, could help to bolster this market. This is still the largest market in the world (with, possibly, the largest problems in the world), but it is unlikely its direction will be decided until after the Presidential election.
Energy
We are concerned that the Brent Crude Oil price is now circa US $113 per barrel - which is slightly higher than the markets would welcome. Any further spikes in oil prices could bring the current market sentiment tumbling and may cause a rather rapid retrenchment of recovery.
Commodities
We still recommend investment in gold, although we believe there is likely to be a pull-back in the gold price, possibly over the next week or so, which may also be affected by the ongoing strengths of some of the Asian Currencies.
Inflation
It is important to keep a weather eye on the inflation issues - not only in the UK, but also around the world, as inflation (especially commodity inflation) is likely to be a strong headwind to recovery.
We anticipate there will be a correction in the not too distant future. This may be fuelled by a resurgence in food prices or commodity prices, in general. It will probably not become apparent until inflation statistics for March 2012 are available.
India
As mentioned in our January 2012 Newsletter, we are concerned about India and its short-term position - especially with the advent of another election this year. We have seen fairly significant recovery, although India, generally speaking, is a world laggard, primarily because of the lack of corporate governance.
Long term, India is a very exciting opportunity for investors and we plan to remain fully invested in this area for as long as is appropriate and we are pleased to see the recovery.
China
The Chinese Government have talked about fiscal easing and have already put in place measures to help promote the thought that they may relax some financial constraints, in order to look forward again. This has been gradually undertaken since October 2011, but it is evident the Chinese Government are keeping a very strict control on the growth of the markets, in order to avoid fuelling inflation any more than is necessary. Nevertheless, China remains a very important part of our long-term strategy.
Emerging Markets
It is fair to say, as mentioned in previous Newsletters, that the Emerging Markets sector is, in reality, now the developing market sector. Many of these markets are recovering quickly, showing the ability to grow, as well as the ability to manage their monies better than, perhaps, more developed countries.
On that basis, this particular sector has shown a substantial degree of recovery and continues to be an extremely important part of our long-term strategy.
Summary
Overall the short-term position looks very welcome and the recovery in most markets is extremely pleasing. We are mindful the effects of the current accommodative monetary policy is beneficial to liquidity and markets in general, however, this is a very short-term view and the problems in Europe still exist. Moreover, the ability of the European Politicians to be able to work in a cohesive way and be bold in terms of the management and control of the spiralling debt in Europe is essential. Without evidence of this control, we anticipate sentiment will weaken and there may well be another sell-off.
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.
If you would like a PDF version of January’s Investment View please download here
