Market Musings for June 2009

Straight ahead?

Returns for May

Yet another positive month

May saw a strong showing in the Far East, useful returns in the West and continued weakness in gilts and currencies.

The graph shows the FTSE100 over the past three months. You can break it down into sections. First, the March rally, which started on 3rd; after a late month setback it went on to peak on April 2nd, then slipped sideways before a late month surge took it to a peak on May 8th. Since then it has broadly traded sideways again. The dashed lines show the current trend's "confidence limits" and give suggested upper and lower boundaries for the index. Nothing is set in stone but this does suggest that if the current trend continues the FTSE should head more strongly upwards until it hits the top limit again. Trends, however, are only trends until they are broken!

Probably the most significant difference lately is that investors' risk appetite has been returning.

Although it doesn't mean that investments will go up regardless it does mean that, whereas while any bad news might have caused a major fall and any(?) good news would have been ignored last year, now the slightest whiff of good news can send the market soaring and surprising amounts of bad news are being ignored.

In reality, we still have a very long way to go before we get back to the world we knew just a few years ago. We have to somehow repay another World War's worth of debt which has been injected into the system to prevent total collapse - and this will take time and will probably generate inflation at levels not seen for decades, not to mention hefty tax bills (the highest UK marginal tax rate is already set to be over 70% once budget proposals are implemented).

Investors might like to try to defend against future tax hikes by re-considering qualifying regular savings plans, where the proceeds are tax-free to the investor. If doing so a sensible bet could be to invest in property funds, as these are likely to recover after an initial dip - which is just what you want for regular savings.

Investment houses' views

On average fund houses are neutral on everything except Pacific (excluding Japan) equities and UK Corporate bonds, where they are positive, and on all property, where they are negative.

As ever, there are variations - there are two fund management houses which are positive across the board on all equities, one which is positive on all currencies and one which is negative on all currencies - apart from that they are all either neutral or mixed, with the exceptions mentioned.

Looking behind this it means they are now less positive on UK and emerging market shares, but less negative on Japanese and US shares.

Still bumpy but it's nice to see the bears not getting it all their own way, still.

The above is not intended to imply any advice.

MDM Associates Ltd, MDM House, High Street,
Ripley, Woking, Surrey, GU23 6AN.
(All data: source: Sharescope: to 29/5/09)