February 2010
Although equity markets started the year positively, January turned out to be a poor month with the FTSE All-Share Index declining by 3.6%. A number of factors weighed on investor sentiment and hence appetite for risk. Amongst these was the Q4 09 UK GDP reading, which whilst positive and indicating that we are exiting the recession was a disappointing 0.1%.
Additionally there was the announcement from the US that President Obama intended to implement substantial changes to banking regulation, the news that the Chinese were seeking to restrict bank lending, poor US employment data and rising concerns about the deteriorating financial position of Greece and to a lesser extent Portugal, Spain and Italy. The banking and commodity sectors were particularly weak as a result of their low exposure to these sectors, small companies outperformed their larger counterparts returning 2.8%.
A number of holdings were top-sliced during the month following a period of strong
performance. These included: Mothercare, Robert Walters, Weir, Dechra Pharmaceuticals and Chemring. The proceeds were re-invested into holdings that had performed less strongly including: Huntsworth, Holidaybreak, Chaucer, Interserve, Forth Ports and Greggs.
Whilst the news that the UK has exited recession is clearly positive, there remain a number of risks to the outlook for 2010. These include the impending requirement for monetary and fiscal tightening, a lack of leadership from the Government in the run up to the general election, the potential for the problems facing the less well-off members of the EU to have a much greater secondary impact on other financial markets and an ongoing lack of clarity as to whether we face an inflationary or deflationary environment. In such an environment equity markets are likely to continue to be volatile.
Source: Monthly Factsheet Aberdeen Asset Managers Limited