Even as the FTSE tested 5,000 (the wrong way) and the DOW retested the 10,000 mark any sane investor would have been happy with progress over October and November. When you remember that just in March 2009 the FTSE stood at 3,500 and the Dow at 6,500, it is clear that markets have come a long way and that a correction or two is inevitable. Other markets have also recovered. Corporate bond markets have had their best period ever and commodities have rebounded strongly. Gold is in the news as fears of Dollar weakness and returning inflation push investors (often central banks) into a physical asset.
So where do we go from here? First, the economies of the US, Europe and the UK must, sooner or later, be restricted by the burden of quantitative easing. All of that Government support will have to be paid for – either in extra taxation or inflation. For now though, equities still look cheap and (as commented last month) the markets are behaving true to form as we pull out of recession – with plenty left to go for. To me that suggests a higher emphasis on the emerging markets for growth and the shares of Western companies with interests in those markets, and some local companies too, for income.
Corporate bond markets have given most of the capital gain that was there. Concerns that central banks will eventually raise interest rates will restrict future upward potential although a decent income can still be had. With deposits yielding such a poor return there is much to be gained by investing for the longer term at favourable levels in both bond and equity markets.
The rise in the price of gold reflects a growing sense of unease amongst the central banks of developing nations that the Dollar will weaken. Many economists argue that the developing nations’ currencies must strengthen (which they surely will as their share of world trade grows further) and in the meantime gold is seen as a modest alternative to holding reserves in the Dollar.
Author: Graham Barnes
Highlights for November 2009
- US emerges from recession with stronger-than-expected annualised third-quarter growth of 3.5%
- Third-quarter US corporate earnings-per-share easily beat consensus estimates
- Economic sentiment across Eurozone rises for seventh consecutive month
- In Europe inflation remains negative, while unemployment edges higher
- Risk aversion in the second half of the month leads UK equities into negative territory in October
- Despite this, the FTSE 100 index manages to end the month above the psychologically-important 5,000 level
- UK GDP declines for sixth consecutive quarter
- Authorities in India, Singapore and Indonesia all increase 2009 GDP forecasts
- Japanese exports and industrial production improve, while unemployment falls for the second consecutive month
- Credit markets see further gains, led by lower quality debt