Market Comment 16 April 2012

The market has been trading in line with our recent strategic and tactical expectations, showing consolidation and correction after an impressive rally in the first quarter. The US market has declined by just 4% from its recent high, whilst the European market has lost closer to 13% as concerns about economic growth and debt continue. There are many parallels to 2011, leaving open questions as to whether this correction might evolve into something more serious. On that point, the jury is certainly out. We have a positive rating on equities globally; not least, if the situation continues to deteriorate, we believe central banks will act to support markets. We expect a volatile year, but we expect markets to rise from these levels by year end. This is not to say that we are blind to the risks, we do see a real threat to the Euro Area. This is especially true as the market appears to be challenging the idea of austerity in recession on such a broad scale. Risk-averse investors will need to be careful about what they buy and when. But, we would remind that not all is negative. The US, for its part continues to present healthy growth, and we believe the trend will continue. Emerging markets are doing well economically, meaning that developed-world risks are weighing on their share prices, and those risks are centred in Europe. But, here too the risks are not one-sided. Spain is not Greece, it has nothing like the debt load on government books. Debt in the private sector is easier to manage through market pricing. In a negative scenario, there will be excellent opportunities for M&A in the Spanish market. Additionally, Spain now has a government intent on restoring credibility and growth. Many changes have already been made, and we are now in the lag between the changes being introduced and their impact showing up in the economic statistics. If the markets can?t wait for that to happen, the central bank will step in. The situation continues in line with our understanding from last year. The EU is using market mechanisms to force difficult changes in national economies. It is a slow and painful process, but it is proceeding. Investors suffer through volatility, and even more through negative real interest rates, underlining the importance of maintaining some risk exposure. We believe the global growth cycle is in place, and we plan to use the current correction to buy risky assets, particularly globally oriented businesses and companies with stable dividends. Meanwhile, if you are concerned about a repeat of 2011, we recommend you pursue strategies that benefit from a strengthening dollar.