Market Overview, February 2010
According to the Chinese Zodiac – 2010 is the Year of the Tiger.
The Tiger is the third sign in the Chinese Zodiac cycle and is a sign of bravery. This courageous animal is admired by the ancient Chinese as the sign that keeps away the three main tragedies of a household: fire, thieves and ghosts!
Speaking of ghosts. Equity markets took positive momentum into the New Year but gains were soon eroded as President Obama announced a crackdown on risk taking by banks. The financial sector led equity markets lower as investors feared a negative effect on investment bank earnings. Weakness spread to other areas during the worst monthly drop in equities since February 2009, as investors grew increasingly concerned about the withdrawal of stimulus measures around the world.
It was a disappointing start to the year too for global emerging equity markets with sentiment soured by Chinese policy tightening, the increased risk of Greek debt default and uncertainties about the future of the US banking model.
Corporate bond markets began the year strongly. The Euro was lower vs the US dollar on concerns that Greece would not be able to meet its debt obligations.
US
Monthly market fall the largest since February 2009. President Obama proposes measures to restrict banks’ operations and ensure they repay money loaned by the government. US economy grows by 5.7% over Q4 2009 – its fastest rate for six years.
Europe & UK
Eurozone unemployment hits 10%. German economy shrinks by 5% in 2009. UK exits recession – but only just.
Asia Pacific
Fourth quarter GDP in China hit 10.7% year-on-year, leaving full year GDP growth at 8.7% in 2009. Policy tightening began in China and India where banks’ reserve requirements were increased. Japan’s exports turned positive in December for the first time in 15 months.
Emerging Markets
Disappointing start to 2010. Sentiment soured by Chinese policy tightening, increased risk of Greek debt default and uncertainties about the future of the US banking model. Brazil, a key exporter of commodities to China, underperforms. However, Russia advances despite fall in oil prices.
Your choices: With the above factors taken into account we still believe it would be prudent to move accumulated capital into defensive positions for at least the first two quarters. Assuming the role of the Tiger we take on the character as protector and take advantage of its circumstances.
The Tiger is a natural leader, and as a lone rebel it goes up against authority and speaks out about wrongs in the market and willingly puts up objections.
Gung Hay Fat Choy!