Global markets performed strongly in the second half of 2009. We believe that we have seen the end of the worst bear market in our lifetime and can now look forward to a decade of prosperity. The stock market roller coaster will continue to excite and unnerve us with its ups and downs but we remain convinced that long term investors can look ahead with optimism.
Even though we are looking forward to a new age of prosperity in the stock markets, we know that bull markets do not go up in a straight line. Our most pressing concern for the stock market’s short term prospects is the signal that the monetary policy makers programme of quantitative easing is coming to an end. Although a positive indicator for the health of our economy, we expect such a signal to have a negative short term impact on the stock market.
Our aim is to position the portfolios to benefit from a long term upward trend. So what are we investing in? In our view, equities are the most attractive asset class on both valuation grounds and future growth prospects. Following a decade in which equity markets in the developed world suffered two extreme periods of market volatility and, in 2008, one of the worst years in stock market history, we find that expectations and valuations are low which presents an exciting investment proposition. The only real success story during this period has been the emerging market equity markets.
Despite the exciting growth potential of the emerging markets and the fact that many of their economies are healthier than the UK and US economies, investors remain cautious about investing in these regions. We understand that only 5% of a typical private client investment portfolio is invested in the emerging markets. However, as investors become accustomed to a change in thinking and as the emerging markets mature over the next few years, we believe more people will come to share our global outlook.
Our investment theme going into 2010 is consumer growth in the emerging markets and we are playing this in a number of different ways. We continue to advocate investing in our favoured geographic regions such as India, China and Latin America but with a greater emphasis on the consumer. We are also looking at global businesses which derive a significant portion of their earnings from the emerging market economies. These may be companies listed on the UK, Continental Europe or US exchanges but which have expanded their businesses to benefit from the higher growth rates of the emerging economies. Many such businesses are attractively valued having been out of favour for the last decade and are displaying genuine growth characteristics: operating in growing markets; growing market share due to the strength of their brand or management team; enjoying significant operational leverage following a period of cost cutting. They have quietly avoided the general malaise that hit the stock market in the first quarter of last year and yet remain under the radar, thus offering exciting investment opportunities.
We are delighted to close the door on what we believe, in the future, will be referred to as ’the lost decade’ for equity markets and we are ready to embrace new opportunities. We believe 2010 will be about improving sentiment and although the market is unlikely to continue the strong upward trajectory of recent months, the ground work will be set for a period of solid returns.
We would like to wish you a happy and prosperous 2010.
