Market Update

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Global Overview - March 2008

• March proved another volatile month in global equity markets as economic data reflected a further deterioration in the global economy, US investment bank Bear Stearns became financially distressed and the US Federal Reserve Bank took dramatic measures to prevent the financial crisis from worsening.
• The FTSE All-World Index™ fell by 1.6% over the month, recording a total return of -1.3% in sterling terms. This was better than the UK FTSE All-Share Index™, which fell by 2.9% and reported a total return of -2.1%. The weakness of sterling during the month accounted for some of this disparity.
• On a regional basis, the weakest areas were Middle East & Africa (-7.2%), Asia Pacific (ex Japan) (-5.8%) and Japan (-4.4%), while the best returns came from Europe (ex UK) (1.5%) and North America (-1.0%). These returns reflected both the reversal of commodity prices and increased investor aversion to risk.
• The weakness in commodity prices was a dominant factor for industrial sector performances, with Oil & Gas and Basic Materials the two worst performing sectors. Negative news flow meant that Health Care was a close third. The best performing sectors were Consumer Goods, Technology and Consumer Services.
• Economic data continued to point to further weakening, particularly in the US where retail spending deteriorated and consumer confidence fell to a 14 year low. Although the US housing market showed some signs of stability, there remains a significant overhang of unsold property. The Federal Reserve Bank announced an even more generous lending facility for primary dealers and cut official interest rates from 3.0% to 2.25%.
• Canada followed the US by cutting their rates by 0.5% to 3.5%.  However, the continued rise of inflation in most regions prevented similar action by other central banks. Concern over inflation in Australia meant rates were actually increased by 0.25% to 7.25%. The Bank of England provided $5bn to the banking system as part of a co-ordinated central bank effort. This was seen as an indication that interest rates would be cut at the next meeting, prompting further sterling weakness.
• Elsewhere, on the foreign exchange markets, the Euro and Japanese Yen continued to strengthen against sterling and the US dollar.
• Commodity prices have remained remarkably resilient in the face of equity market turmoil. However, they did fall sharply from their peaks during the month.
• M&A activity is subdued as a consequence of the credit crunch, with Vale’s bid for Xstrata the latest deal to be withdrawn. JP Morgan’s bid for crisis-struck Bear Stearns was extremely opportunistic and would not have occurred without guaranteed financing from the Federal Reserve.

John Kennedy
Manager

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