We've written this commentary assuming you have some experience of investing in stocks and shares. This means that although we have tried to write as much as possible in plain language, we may have used used certain words or phases that might not be familiar to anyone new investing. If there's something you dont understand, please contact your adviser. It is not an offer to buy or sell any investments or shares.
Sentiment more positive following government action
The first quarter began with a continuation of the problems that beset financial markets in the final quarter of last year. The ongoing credit crunch exacerbated the downturn in global economic activity and all major world economies are now in recession.
The extent of the contraction in economic activity has varied among leading economies, with Japan hit particularly hard. Exports have traditionally been the key driver of Japenese growth and these have slumped compared with a year ago. At its worst point, the Japanese equity market reached its lowest level for more than 26 years.
Elsewhere, the US market dipped to a 12-year low on concerns over the banking sector and poor results from insurance company AIG. In the UK, the FTSE 100 Index briefly returned to its lows of 2003 as bank shares suffered another bout of weakness on nationalisation worries. However, since their lowest point in early March equity markets have rallied following an improvement in sentiment, triggered by further supportive measures for western banks and economies.
Fears of potential bank nationalisations have dissipated and investors have been cheered by news that many banks are now on a stronger business footing, helped by the higher fee income from rights issues and corporate activity. The first quarter was characterised by several large takeovers and mergers, notably within the pharmaceutical sector. Strong companies are taking advantage of their competitors' low share valuations to make strategic acquisitions.
Investors are now more convinced that central banks and government authorities will do all in their power to revive the global economy. Central banks in the US and UK have cut official interest rates to record lows, and across the globe governments have announced substantial fiscal stimulus packages. China's stimulative measures have already begun to yield results and thecountry's banking system has been more insulated from the US sub-prime debt problems.
In the UK, interest rates were cut to 0.5% on 5 March, the lowest level since the Bank of England was founded in 1694. The Bank also initiated the unconventional policy measure of 'quantitative easing', which is designed to increase the money supply and ward-off any potential threat of deflation. The Bank has begun to buy back government bonds and high-quality corporate bonds, which should lead to lower bond yields and enable companies to issue debt on more advantageous terms. Similarly, the US Federal Reserve announced plans to buy long-dated government bonds and morgage-backed securities, which should help to lower long-term interest rates and aid economic recovery.
This table shows how different indices, representing different geographical regions, have performed over various time periods to 31 March 2009.
| |
1 year |
2 years |
3 years |
4 years |
5 years |
10 years |
| UK - FTSE All Share |
-29.33% |
-34.80% |
-27.53% |
-7.23% |
+7.21% |
-6.40% |
| US - FTSE USA |
-13.38% |
-18.75% |
-19.55% |
-0.96% |
+3.05% |
-15.40% |
| Europe - FTSE World Europe ex. UK |
-31.06% |
-29.10% |
-20.30% |
+8.43% |
+28.61% |
+17.85% |
| Asia - FTSE World Asia Pacific |
-16.92% |
-20.16% |
-21.35% |
+13.28% |
+16.11% |
+23.25% |
We've sourced these index figures, in sterling terms, from Financial Express to 31 March 2009. 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 gain, and tax conditions are unlikely to be 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-termview 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 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 any changes to your plan.
