The dilemma that markets face causes fear on some days and optimism on others – and until one mood triumphs we are unlikely to see a clear direction.
On the negative side we have the end of quantitative easing and the consequent cessation of the liquidity which had so restored markets. Equally various national Governments are also being seen to have shaky finances and possible difficulties in borrowing what they need to pay the bills. Much as many would like the banks to reimburse ‘the taxpayer’, President Obama’s promise of a 10 year levy also weakened sentiment.
On the positive side is the continuing strength of corporate earnings. Naturally the end of a recession will see companies re-stocking which will explain an initial ‘bounce’ but, in the USA alone in the fourth quarter 2009 revenue grew by 3.5% across all sectors. That demonstrates the recovery that is going on at company level.
So, Governments are struggling to meet their bills (which is bad news for taxpayers) and companies are broadly doing well (which should be good news for investors).
Concerns about Government finances will cause volatility in all markets probably through 2010 but there are plenty of equities offering both growth and a good yield that are worth tucking away for the long term.
Author: Graham Barnes, International Director
Investment Highlights
• US monthly market fall the largest since February 2009
• President Obama proposes measures to restrict banks’ operations and ensure they repay money loaned by the government
• Eurozone unemployment hits 10%
• German economy shrinks by 5% in 2009
• UK exits recession – but only just
• Inflation rises above Bank of England target
• Fourth quarter GDP in China hit 10.7% year-on-year, leaving full year GDP growth at 8.7% in 2009
• Policy tightening began in China and India where banks’ reserve requirements were increased
• Japan’s exports turned positive in December for the first time in 15 months
• Greek government bonds continue to weaken as concerns about public finances persist