Ongoing economic recovery
During the first quarter, equity markets continued to build on the dramatic recovery seen in 2009, and for UK-based investors the weakness of the pound enhanced the returns from overseas investments. In contrast to 2009, developed markets outperformed emerging markets in local currency terms. Among the major markets, Europe lagged in response to concerns over the Greek debt crisis and the country’s imposition of austerity measures. This caused jitters throughout the eurozone and heightened worries over the size of government borrowing in Portugal and Spain.
The UK equity market enjoyed a strong quarter, buoyed by some positive economic data. The initial estimate for economic growth for the last quarter of 2009 was revised up to 0.4%, while in March the UK manufacturing sector grew at its fastest pace for more than 15 years. UK interest rates are expected to remain at a historic low for some time, helping to support economic activity, but meaning money market funds are producing very low returns. However, the size of UK government debt is daunting and is likely to dampen the economic recovery as the government will need to continue to raise taxes and cut spending.
The Japanese stock market performed well over the quarter, having lagged in 2009. The aggressive easing of fiscal and monetary policy globally has helped to fuel demand for Japanese goods. This has been reflected in a ‘V’ shaped recovery in industrial production and exports, suggesting a strong recovery in corporate profits in 2010/11. Significant cost-cutting is helping to boost profits, and any weakening of the yen would prove beneficial. Japanese exports in February were 45% higher than a year ago, fuelled by a strong pick-up in demand from China and other Asian economies. Outside of Japan, Asian equities experienced a period of consolidation.
The US equity market recorded a solid gain in the first quarter of 2010. There continue to be attractive investment opportunities in the technology sector, with many companies offering good revenue growth, strong cash flows and solid balance sheets.
Within government bond markets, UK gilts were affected by the end of quantitative easing and growing uncertainty over the outcome of the May general election. Sterling weakened over the period as fears of a hung parliament increased. The outlook for gilts will largely depend on the attitude of the new government to reducing the budget deficit.
* The market value of all goods and services made within the borders of a country in a year.
This table shows how different indices, representing different geographical regions, have performed over various time periods to 31 March 2010.
| |
1 yr |
2 yrs |
3 yrs |
4 yrs |
5 yrs |
10 yrs |
UK -
FTSE
All Share |
52.30% |
7.63% |
-0.70% |
10.37% |
41.29% |
29.71% |
US -
FTSE
USA |
42.83% |
23.72% |
16.04% |
14.91% |
41.46% |
0.63% |
Asia -
FTSE
World Asia Pacific |
49.07% |
23.85% |
19.01% |
17.25% |
68.87% |
22.70% |
Europe -
FTSE
World
Europe ex. UK |
48.23% |
2.20% |
5.10% |
18.14% |
60.72% |
41.75% |
We’ve sourced these index figures, in sterling terms, from Financial Express to 31 March 2010. The indices mentioned above are measures of the markets they represent. For example, the FTSE All-Share Index represents 98-99% of the UK market. It is the aggregation of the FTSE 100, FTSE 250 and FTSE Small Cap Indices.
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, both of which can go down as well as up.
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. The usual way to deal with volatility is to invest for the medium to long term – a period of at least five to ten years.
It’s important to find the right product and invest in the right funds, and this depends on your investment objectives and attitude to risk. If either has changed, your adviser will help you review your investment to make sure it continues to meet your needs. Although we don’t give investment advice, we do offer a wide range of funds suitable for almost all investment objectives and attitudes to risk.
We’ve written this commentary assuming you have some experience of investing in shares. This means that although we have tried to write as much as possible in plain language, we may have used certain words or phrases that might not be familiar to anyone new to investing. If you don’t understand any part, please contact your adviser.
We strongly recommend you speak to your adviser before making any changes to your plan.
