February Market Commentary

January has seen further improvement in equity markets reflecting a number of factors including indications of progress in terms of the long term project to stabilising the Euro, at least an interim deal to keep the US “fiscal cliff” at bay for a while longer – indications that last year’s slowdown in Chinese economic growth may well have bottomed out, and the new Government in Japan has announced a significant economic stimulus package.  Furthermore, Company results that have already been announced and their comments on this year’s outlook (and result season is now well underway), have generally been acceptable, if not spectacular, with some further increases in dividends.

The outlook for nations, as opposed to simply companies, remains more mixed.  It is clear that Governments in many countries will need to continue to inject money into their economies.  It is for this reason that we remain concerned about medium term inflation, and in this context note with concern the recent decline of Sterling in foreign exchange markets which, while potentially boosting exports, increases the cost of all imported raw materials and goods.  Should this become a significant problem we may well see Sterling interest rates rising rather faster than fixed interest markets envisage, with negative connotations for those markets.

On balance our view is that equity markets, with further prospects of rising dividends over time, continue to provide good value in a climate where, globally, we are beginning to see the return of better growth.  Cash remains a certain loser in real terms, and with this in mind we are beginning to look to reduce fixed interest exposure within portfolios as we see risk in this sector starting to increase.