August 2010
July was a good month for equities. Appetite for risk began to increase and this was reflected
in a total return of 6.9% from the FTSE All-Share Index. Smaller companies performed less well
but still generated a respectable 3.6%. Pre-close statements from companies were generally
positive. Macroeconomic news flow was better in both the UK and EU. With the former
reporting second quarter GDP growth of 1.1%, the strongest reading since the start of 2007. In
the EU the results of the banking stress tests were surprisingly positive with just seven of the
91 banks failing and only requiring an aggregate e3.5 billion. The data coming out of the US
was less positive, and although second quarter GDP was positive it represented a slowdown in
comparison to Q1. This reignited fears of a double dip recession across the Atlantic and led to
Ben Bernanke describing the economic outlook as being “unusually uncertain.”
We topped up a number of holdings during the month. These included McBride, Helical Bar,
Wilmington and Chemring
We are entering the autumn reporting season. Many companies are reporting good results,
though caution is needed not to extrapolate this level of growth into next year. There is still a
lack of clarity, especially in the UK regarding the cuts that will be announced at the spending
review in October. Investor sentiment is fragile. The focus has shifted from immediate concerns
about a European sovereign debt crisis to worries that the US will succumb to a double dip
recession. Data emanating from the US relating to the housing market and unemployment suggest that they are some way from a sustained recovery. Analysts’ expectations for earnings
growth are beginning to be reined back especially amongst larger companies.
The outlook is uncertain but we continue to identify companies with solid balance sheets, cost
bases that are capable of coping with a slowing in the pace of recovery and that are trading on
attractive valuations.
Source: Monthly Factsheet Aberdeen Asset Managers Limited