Market Overview, February 2009

As we move ahead into 2009, we are looking at some of the prospects for the first quarter of the Year of the Ox and deciding how these fit into the context of investment outlook.

There is probably going to be a stronger distinction this year between some of the more strategic themes that may well play out not just over 2009, but well beyond. In fact, it is quite possible that the events of the last year or 18 months have actually shaped the investment outlook for as much as the next 5 years.

Focusing on some of the nearer-term concerns in markets, and in terms of what we can say confidently, we know that the global economy does face quite significant challenges at the moment. Some of those concern the recession that appears to have begun in most of the developed economies during the course of 2008, with the likely outcome pointing to most economies starting 2009 with a negative quarter of economic growth.

It is important to emphasise at this stage that economic data have not yet stabilised. We are still seeing evidence of weakening in terms of consumer and business confidence, and in terms of activity, whether that is business orders or consumer spending. This will almost certainly continue through the first quarter of this year at least.

We expect the second half of 2009 will bring some moderate stabilisation in activity. This will prompt a lot of questions about the longer-term outlook in terms of what the new financial landscape is looking like, and who are the winners and losers. However, at the very least, the stabilisation in activity that we are expecting should allow a bit of recovery in risk assets and allow us the time to evaluate how the future is likely to pan out. As such, we would expect to be looking to increase exposure to risk assets, such as equities and possibly the more-cyclical markets and some emerging markets, again.