August Market Commentary

The second quarter of 2012 has seen many leading equity markets (including the UK) consolidate and rally alongside fixed interest markets in the so called safe haven countries including, notably, Germany, the UK and the USA.  Given the economic backdrop, at first sight all this may seem surprising, but it continues to be clear that against a background of reducing forecasts for global growth, interest rates will remain well below normal levels and other steps to ease monetary policy are likely to continue.  It is this that has pushed fixed interest yields inexorably downwards, while the ability to raise cheap long term debt will stand good quality companies in good stead for years to come.

We are now well into the season when companies report on earnings and profits for the first half of the year and with some exceptions (notably mining & oil producers where raw material price have fallen back), the outcome has generally been satisfactory, and perhaps better than expected, with companies feeling sufficiently confident to continue the trend towards higher dividend payments. 

The conclusions that we come to at this stage are that whilst fixed interest markets are not cheap, they continue to offer reasonable value to income seeking investors and, against historical yardsticks, equity markets appear far from overvalued taking a view over the next 3 to 5 years.  Plenty of uncertainties are clearly in evidence, Eurozone developments (and there are indications of gradual progress to a more federal system) will continue to have an impact as will US budget issues once the Presidential elections are behind us, but we feel that these issues are reasonably discounted at current levels.  With all of this in mind, our broad view is that soundly invested portfolios should remain undisturbed whilst for those taking a medium term view point, this may prove a reasonable time during which to add to portfolios.