Market Commentary - Year end 2008 - 2008-12-31
The final quarter of 2008 started with a period of unprecedented fear of a systematic collapse in the UK and global banking system. In the US, the giant Lehman Brothers was allowed to go the wall, which sparked panic in investors worried of further exposure to “toxic assets” in other institutions. In hindsight, it is clear that the coordinated subsequent action from governments, to pump liquidity into the financial system, was required to simply keep the system afloat, as opposed to get the system moving forward again.
Economically we now undoubtedly find ourselves in a recessionary period by in the UK (likely to be confirmed in January), with global growth slowing sharply, and unemployment rising. With this background we expect markets to remain volatile as investors weigh up bad news on the economy against an unprecedented array of central bank and government stimulus packages. This is highlighted by the rally in markets shown at the end of the quarter, in December, when the FTSE World index returned over 10%. Such periods of positive and indeed negative volatility are likely to persist for some while as yet, which will lead to short term fluctuations in the value of portfolios.
Whilst 2008 is undoubtedly a year most investors will be glad to see the back of (if equity market returns are anything to go by), the question for consideration is what will 2009 bring? Whilst the global economy is expected to slow through 2009, a good deal of bad news is already priced in to equity and corporate bond markets.
It is wise to remember that the market is an excellent discounting mechanism and is likely to turn for the better sometime before the economic indicators do the same. With returns from deposit accounts being slashed, investors are best advised to maintain a diversified portfolio as by waiting for economic evidence to get better before returning to markets, it is likely that some of the best rises in markets will be missed.
Please continue to raise any questions that you have with an adviser, particularly prior to making any investment or disinvestment decision.
Opinions expressed represent the views of Stan Gaskin Ltd at the time of writing, They are subject to change and should not be interpreted as specific advice. Please discuss your personal circumstances with an adviser prior to making any investment decision.
