The Word from YFSOL - 1st December 2010
Global - Asian stocks rose on Thursday for the first time in three days after reports showed U.S. unemployment claims declined to the fewest since 2008 and consumer sentiment also improved, boosting confidence in a global economic recovery and driving commodity prices higher.
"The global economy is certainly improving, so we don't have to be pessimistic about the economic outlook," said Hideaki Higashi, a strategist in Tokyo at SMBC Friend Securities Co. "The market should become more active. "The S&P 500 rose 1.5percent on Wednesday, the most in four days, whilst the MSCI World Index rose from a five-week low.
China - The People's Bank of China (PBOC) said it will strengthen liquidity management and "normalize" monetary conditions, reinforcing forecasts for higher interest rates to combat the highest inflation rate in two years.
The nation will use quantitative and price tools to manage liquidity, Hu Xiaolian, a central bank deputy governor said. PBOC adviser Xia Bin said that both higher rates and bank reserve ratios may be needed to control liquidity.
Japan - Japan's Nikkei average rose 0.5percent on Thursday and edged back toward a five-month high hit earlier this week, supported by demand from overseas investors and the yen's recent dip against the dollar. Tokyo shares regained some of the ground lost the previous day, when worries over tensions on the Korean peninsula prompted investors to book profits from a recent rally.
The Nikkei, which has rallied 9.5percent this month, helped by overseas investor demand for Japanese shares including short-covering and year-end portfolio tweaking, may rise further toward the end of the year despite some signs of overheating, analysts said.
India - Indian stocks face their "stiffest test" as corruption scandals threaten to cap the world-beating rally that took the benchmark index to a record this month, according to Morgan Stanley.
Federal investigating agents arrested eight Indian bank and brokerage officials on Wednesday following a probe into bribes and improper loan disbursals. The agency has separately been examining the role of a former central government minister in the sale of phone permits for less than their market value.
India's benchmark stock index has retreated 7.3percent from a Nov. 5 record close as inflation in China, Europe's debt crisis, tension between North and South Korea and concern about the strength of U.S. growth roiled investor confidence.
Ireland - A rescue package that Goldman Sachs Group Inc. estimates may total EUR95bn (USD130bn) failed to damp speculation that Portugal and Spain would follow Ireland in tapping the fund set up by the European Union and International Monetary Fund after the Greece rescue.
The euro fell and Irish bonds pared their advance after Moody's Investors Service said a "multi-notch" downgrade in Ireland's Aa2 credit rating was "most likely" because the aid would increase the country's debt burden.
In order to attain the loan and in a bid to appease markets, Ireland has unveiled the harshest budget measures in its history, a four-year plan to slash deficits by EUR15bn (USD20bn) so it can receive a massive bailout from the European Union (E.U.) and the International Monetary Fund (IMF).
Talks on an IMF/EU bailout for Ireland will likely be concluded by the start of next month, a spokesman for EU Economic and Monetary Affairs Commissioner, Olli Rehn, said on Thursday.
Hong Kong - Fitch Ratings raised Hong Kong's debt rating to its second-highest ranking, citing the city's fiscal strength and ability to weather external shocks with reserves. Hong Kong's long-term international debt rating was lifted to AA+ from AA, with a stable outlook. The long-term local debt rating was kept at AA+ level.
The strong growth in Hong Kong's economy and the government's "prudent fiscal management" were reasons for the upgrade, the ratings company said. Moody's Investors Service on Nov. 11 upgraded Hong Kong's government bond ratings to the second-highest ranking, citing the city's economic links to China, whose ratings were raised on the same day.
Currencies - The euro struggled near a two-month low on Thursday as the euro zone debt crisis showed little signs of abating and fears of contagion still high after Ireland unveiled an ambitious austerity plan.
Traders said Portugal and increasingly Spain were seen as potentially in need of financial help while Dublin's belt-tightening plan has come under fire for sticking to optimistic growth assumptions, unveiled earlier this month.
Spotlight on keeping faith in the West
Mature economies, and Europe in-particular, have recently been suffering from an image problem brought on by sovereign debt worries, low growth, austerity measures and poor productivity. Nevertheless, while 'past performance is by no means a guide to future performance' it is interesting to note that over the past two decades, the MSCI Europe index has steadily outperformed the MSCI World index. And those asset managers that focus on Europe as an investment region insist that over the long-term at least, they remain a good choice when used as part of a broader, balanced portfolio.
The shift in economic power from West to East has been widely reported, with economists forecasting an eventual over-taking of the U.S. as the major world economy by China, at some point in the future. This apparent formality has given rise to a wider debate about the future of investments that focus on the fortunes of Western economies, with representatives of such funds quick to inform us of the track record of 'East Vs West' over the years.
The investment industry, like any other, is fiercely competitive, with a multitude of asset managers talking down the other. Thus, as you would expect, managers of the now 'un-loved' region of Europe are quick to dispel the flurry of bad press and defend their corner. It is their opinion therefore, that some of the assumptions that promoters of emerging market funds often use to entice investors 'Eastward' need challenging.
Perhaps the biggest worry about the West is the extent of the eurozone sovereign debt crisis, which many believe will lead to prolonged periods of low growth and possible deflation. But over the period that these anxieties have existed, European equities have actually performed strongly. Part of this can be explained by the fact that investors don't invest in 'Gross Domestic Product', they invest in corporate earnings (i.e. the principle of 'investing in companies, not countries') and, helped along by a weaker euro, European companies have been performing well.
According to JPMorgan Asset Management, investors have also been fretting about a Japan-style lost decade, citing similarities such as an ageing population, real-estate bubbles and deflation fears. However, there are also major differences, such as the fact that the yen showed no sign of falling when the Japanese bubble burst, whereas the euro has fallen quickly.
Furthermore, while Japan moved slowly to address the changing situation (actually tightening monetary policy at the start of the crisis), the European Central Bank moved quickly to cut rates and inject vast amounts of liquidity into the financial system. Additionally, the house price bubble appears to be an equally inappropriate analogy, with only a few countries such as the U.K., Spain and Ireland suffering from significant bubbles, and these are minor compared with Japan's excesses. For example, house prices peaked at eight times gross annual income in Spain compared with 18 times in Japan.
But perhaps the greatest uncertainty of all is uncertainty itself.
Some investors are happy to follow the route into emerging market strategies, others are becoming more risk-averse, instead opting for a multi-asset non -correlated investment approach, or indeed both!
At Yachting Financial Solutions we can help you create a financial plan encompassing any or indeed all of these options...........
