Most world equity markets performed well over the last six months, although the US lagged behind the gains seen elsewhere. The continuing expansion of global economies allowed equities to make further progress. Indeed, economic growth in the US and China has been strong. Overall, markets have been supported by attractive valuations, good company earnings and low bond yields. Equity markets made progress despite further hikes in US interest rates and the strength of the oil price, which in August reached a record high of almost $70 a barrel in the wake of Hurricane Katrina.
July proved an eventful month for the UK. London’s successful Olympic bid gave an initial boost to companies in sectors such as construction and hotels, although the news was subsequently overshadowed by the bombings of 7 July. Nevertheless, the UK market proved resilient. As the period progressed, equity investors were encouraged by the improved outlook for UK interest rates and in August rates were cut from 4.75% to 4.5%.
European equity markets were particularly strong, aided by good corporate results. There were also a number of key political developments. In May and June, France and the Netherlands respectively rejected the new EU constitution. However, with a ‘no’ vote largely expected, the impact on European markets was negligible. In Germany, the prospect of a general election in September gave a useful fillip to the equity market, as investors believe this could herald important tax and labour market reforms. Although the performance of the core eurozone economies proved lacklustre, the prospects for several countries, including Spain and Ireland, remained upbeat.
The US equity market made progress despite the headwinds of higher interest rates and the stronger dollar. Corporate profits growth remained above the long-term average. The Japanese market saw solid gains, reaching a four-year high on the back of growing confidence over the sustainability of the country’s economic recovery. There have also been some encouraging changes at a corporate level, and as company profitability continues to improve, managements are more willing to increase the level of dividend payments. On the political front, Prime Minister Koizumi is continuing to push through important reforms.
Asian markets continued to benefit from the rapid growth of the Chinese economy. Moreover, UK-based investors benefited from the strengthening of most Asian currencies against sterling. Elsewhere, Latin American equities performed particularly well. The region has an abundance of natural resources and has benefited from the strength of commodity prices, which have remained high on the back of increasing global demand for raw materials.
Government bond markets continued to be underpinned by ongoing demand from pension funds and insurance companies. Corporate bonds, after a strong start to 2005, fell back in March and April amid some uncertainty over the strength of world economies. However, these worries proved short-lived and markets recovered their poise in late May, buoyed by an improvement in investors’ risk appetite and the more benign outlook for interest rates in the UK and Europe. Over the period as a whole, corporate bonds continued to benefit from investors’ search for higher yielding investments.
This table shows how different indices, representing different geographical regions, have performed over various time periods to 1 September 2005.
We’ve sourced the index figures from Standard and Poor’s to 1 September 2005. 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.
|
1 year |
2 years |
3 years |
4 years |
5 years |
10 years |
| [UK - FTSE All Share] |
24.1% |
37.5% |
43.87% |
17% |
-3.18% |
108.64% |
| [US - Dow Jones Industrials] |
5.4% |
2.29% |
11.33% |
-7.38% |
-16.25% |
137.45% |
| [Europe - FTSE World Europe ex. UK] |
29.15% |
38.52% |
51.42% |
18.5% |
-7.99% |
134.42% |
| [Asia - FTSE World Asia Pacific] |
20.32% |
26.16% |
38.32% |
18.51% |
-18% |
-8% |
A long-term commitment
We believe it’s important 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.
One of the best and most accepted ways to deal with volatility is to invest for the long term. Taking a long-term view allows your investment longer to grow, which should make up for any short-term fluctuations.
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.