|
This quarter saw global equity markets continue to decline,
reflecting concerns over the world economic slowdown; these established
trends were exacerbated by the terrible events of 11th September.
The FT-All Share Index fell 13.5% over the quarter, with the
majority of the decline coming in September. The quarter under
review has produced the worst quarterly performance in global
equities since Q3 1990, illustrated by the fall in the FTSE World
Index of 14.9%. In the recent hiatus, global investors have favoured
the security of bonds, which over the last month gave a positive
return of 0.7%, against cash of 0.2%.
Over the quarter the Bank of England cut interest rates by
75 basis points to 4.75%, the lowest rate since 1964. At present
it is felt that the UK will avoid recession as the market is
relatively robust and a buoyant property sector has bolstered
consumer confidence. UK equities have outperformed other major
markets, reflecting the underlying strength of the economy and
its increasing bias towards the service sector. Small cap stocks
were the hardest hit, falling by 19.4% in September alone. Over
the last month the largest positive contribution to the markets
performance came from Oil and Gas, Telecoms and Pharmaceuticals,
whilst Life Assurance and Media acted as the most significant
drag.
In the USA, the Dow Jones and the S&P 500 indices fell
15.3% and 14.6% respectively (in local currency terms), as the
events of 11th September heightened recessionary fears. The Nasdaq
Composite fell by 30.7% over the quarter as technology stocks
suffered once again from diminished growth prospects and lack
of working capital. In response to the state of the economy,
the US Federal Reserve cut its rates by 75 basis points to 3%
in a bid to boost liquidity. Since the quarter end interest rates
have been cut by a further 0.5%.
In Europe, the European Central Bank reduced interest rates
from 4.5% to 3.75% during the quarter, as inflationary fears
receded. However, with the economic outlook deteriorating sharply,
particularly in Germany, European bourses were disappointing,
falling by 18.4% on average. Koizumi, the new Japanese Prime
Minister, promised reforms to redirect government spending and
restructure the economy. The market however remains sceptical
and still harbours concerns over the Japanese market remaining
in a prolonged recession. The Nikkei 225 fell by 24.6% over the
quarter and is now back at levels last seen seventeen years ago.
As we move into the final quarter of the year, there is still
a high level of uncertainty, not least because of the unresolved
situation in Afghanistan. America will almost certainly slip
into recession with negative GDP growth in Q4 2001 and Q1 2002.
Japan is already in recession and the balance is finely tipped
as far as Europe and the UK is concerned. However, we believe
that the substantial easing of monetary and fiscal policies on
a worldwide basis, in addition to a lower oil price, is likely
to lead to a rebound in economic activity in H2 2002 and that
this will be anticipated by markets, leading to a recovery in
stocks in the first half of 2002.
back to Market Review index
|
