Market Commentary - Summer 2009 - 2009-07-01
April and May saw equity markets continue their spring rally which began at the end of the first quarter. Despite markets pausing for breath and shedding a little value in June, the second quarter of 2009 saw the headline FTSE 100 produce its best quarter of gains since Q2 2003, when markets were starting their recovery from the last bear market. Importantly, the positive returns over this quarter put an end to a previous run of 5 consecutive quarters of negative returns.
This rise in markets was achieved against a backdrop of prevailing economic malaise, and therefore helps to highlight to investors that markets behave independently of the economy and typically will anticipate and move ahead of the economy by some margin. In June, the first quarter GDP figures for the UK were revised sharply downwards from an estimated -1.9% to an actual -2.4% - the worst quarterly decline in over 50 years. The figures highlight the very poor state of the UK consumer which could present a risk for companies that have begun to restock inventories.
Looking forward, it is still difficult to tell whether this is a rally which is capable of being sustained or more of a false dawn in the short-term. With continuing low interest rates, it is likely that investors will increasingly consider more risky assets such as corporate bonds and equities which will help underpin the market. Equities still can be considered good value using historic valuation methods, although we believe that the value of active fund management and decent stock selection will be crucial to benefit fully from ongoing growth. We also suggest that portfolios should be well diversified not only in terms of assets, but also geographically, as certain areas such as the US and Asia are expected to possibly outperform the more traditional areas of investment for UK investors (e.g. UK and Europe).
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.
