Key points
- Strong data out of US
- New funding measures in Europe
- Equities rally
UK
Investors defied the sceptics, starting 2012 in ebullient mood. President of the ECB, ‘Super’ Mario Draghi, appeared to have achieved the impossible. Just three months into the job, had cut interest rates twice and come up with a repo solution that appeased the Bundesbank and provided the necessary liquidity to struggling European banks (in all but name, it was QE). Macro data in both the US and Asia also seemed to improve, suggesting that last summer’s slowdown was more of a splutter than choke for the global economic recovery. With many missing out on the snapback recovery in early 2009 and defensive stocks trading at a premium to their cyclical counterparts, little value was attached to dividends, strong balance sheets and defensive growth attributes. January was ‘risk on’. In the UK, the FTSE All-Share closed the month +2.7%; however, the small and mid cap indices outperformed, returning 6-7%. On bond markets, the UK 10-year Gilt yield was flat on the month at around 1.97%.
Global
Cautions soon dissipated as global equities had their best start to the year since 1994. The markets reacted positively to new funding measures in Europe, strong data in the US, and a decent showing from China: the US was up 2.9%; Europe 3.6%; Japan +3.0%, and emerging markets +9.6%.
Investment outlook
With equities continuing to perform well and more positive data out of several regions of the world, there is an increased level of optimism amongst investors and commentators. Greece and its fellow prolifegate neighbours, however, continue to be a thorn in the side of any nascent recovery. As we write, Greece has approved the EU/IMF’s latest austerity plans in order to receive the next tranche of bailout monies. Whether this is enough to appease markets, or if it will ultimately be viewed as yet another delaying tactic before an eventual default, remains to be seen. Risk assets look set to continue to outperform for a while yet.
Julian Chillingworth
Chief Investment Officer
The value of investments and the income from them may go down as well as up and you may not get back your original investment. Past performance should not be seen as an indication of future performance.
Rathbone Unit Trust Management Limited is authorised and regulated by the Financial Services Authority and a member of the IMA. A member of the Rathbone Group. Registered office: 159 New Bond Street, London W1S 2UD. Registered in England No. 2376568.