Equity markets off to a good start in 2006
Global equity markets made further advances in the first quarter, driven by robust takeover activity, supportive company earnings growth and positive economic data. Signs that the recovery in Japan, the world’s second-largest economy, is gathering momentum, and that the era of deflation – falling prices – is finally coming to an end, encouraged investors.
The economic outlook also improved in Europe, with robust data from Germany – the engine of the eurozone. The region also experienced a boom in merger and acquisition activity, including a takeover approach for Endesa and the merger between Suez and Gaz de France. However, some high profile UK takeover approaches collapsed towards the quarter-end. The Nasdaq stock market dropped its proposed offer for the London Stock Exchange and insurer Aviva gave up its planned bid for rival Prudential.
Europe led the world’s major equity markets, with the FTSE Europe ex UK Index producing a total return of 9.9% in local currency terms over the quarter. In contrast, US equities lagged the other major markets, with the S&P 500 Index producing a total return of 4.2% in dollar terms. Rising US interest rates and the prospect of further increases adversely affected US stocks. Elsewhere, Japanese shares made further advances in local currency terms, the Topix Index gaining 5.3%. In the UK, the FTSE All-Share Index performed strongly, producing a total return of 8.1%.
Within the equity markets, energy and mining stocks again performed strongly on the back of high commodity prices. Telecom stocks remained in the doldrums, with a brief rally in March fizzling out on news that the EU planned to crack down on the charges companies levy on customers using their phones abroad.
Leading government bond markets lost ground over the quarter, with yields moving higher in all the major markets including the UK. Sentiment deteriorated against the backdrop of rising interest rates, with US rates raised from 4.25% to 4.75%, and rates for the eurozone increased from 2.25% to 2.5%. 2006 is also expected to see an end to Japan’s zero interest rate policy. Elsewhere, UK interest rates remained at 4.5%.
This table shows how different indices, representing different geographical regions, have performed over various time periods to 1 April 2006.
|
1 year |
2 years |
3 years |
4 years |
5 years |
10 years |
| UK FTSE All Share |
28.39% |
48.36% |
94.32% |
36.43% |
32.12% |
122.5% |
| US Dow Jones Industrials |
17.97% |
18.85% |
35.47% |
-4.14% |
2.62% |
112.11% |
| Europe FTSE World Europe ex. UK |
36.04% |
61.37% |
120.94% |
45.49% |
35.13% |
151.36% |
| Asia FTSE World Asia Pacific |
44.03% |
47.63% |
112.77% |
57.99% |
39.19% |
9.6% |
We’ve sourced the index figures, in sterling terms, from Standard and Poor’s to 3 April 2006. The indices mentioned above are measures of the markets they represent. For example, the FTSE All Share Index averages the performance of 98 to 99% of companies trading on the London Stock Exchange.
A long-term commitment
We believe it’s important, where possible, to take a long-term view when investing. Looking back over the years, volatility has always been a feature of world stock markets, with each setback followed by a recovery – some taking longer than others. One of the best and most accepted ways to deal with volatility is to invest for the medium to long term – a period of at least five to eight years.
It’s important to find the right product and invest in the right funds, which depends upon your investment objectives and attitude to risk. If either has changed, your adviser will help you review your plan to make sure it continues to meet your needs. Although we can’t give you investment advice, we do offer a wide range of funds suitable for almost all investment objectives and attitudes to risk.
We strongly recommend you speak to your adviser before making changes to your plan.
You shouldn't take past performance as a guide to future performance or as the main or sole reason for deciding to invest. It may have been achieved in a more favourable economic period that may not happen again, and tax conditions are unlikely to be the same. We don't guarantee the value of your investment and any income, which can go down as well as up.