(2008March)
PANIC RETURNS TO THE MARKET
•Funds authorized for sale in Hong Kong reported an average loss of 2.09%in March 2008.
•Commodities funds underperformed all other funds by asset type,incurring an average loss of 5.29%for the month.
•Equity funds reported a loss of 3.85%,while bond fundsposted an average gain of 1.01%on average in March.
•Mixed-asset funds delivered an average loss of 1.13%for the month.
•Global equity markets are currently consolidating their recent gains and are awaiting new catalysts to determine their next moves.
•With economic fundamentals and corporate earnings growth not optimistic,the outlook for equities will remain challenging in the coming quarters.
•U.S.interest rates will continue to be lowered.This,coupled with the growth factor withering,should support the value of government bonds and precious metals.
Market Performance
Panic returned to global equity markets in mid-March after Bear Stearns reported a significant deterioration of its cash position,triggering the Fed and JP Morgan to intervene to rescue the U.S.securities house.The incident re-ignited fears that the credit crunch might be spreading to other financial institutions.As a result,global equity markets encountered heavy selling and plunged.
However,their intra-month losses were trimmed toward the end of March after Goldman Sachs,Lehman Brothers,and Morgan Stanley reported better-than-expected 1Q2008earnings,alleviating concerns that financial companies were collapsing.
Government bonds continued to attract buying from investors seeking to park their capital with safe-haven assets as Bear Stearns’s cashflow problem unfolded.New evidence of further withering of the U.S.economy also lifted the value of government bonds.However,government bonds encountered some profit-taking at the end of March after the Fed lowered the U.S.interest rate 75basis points,which was below market expectations,and said that inflation remained elevated.Also,the better-than-expected 1Q2008earnings of Goldman Sachs,Lehman Brothers,and Morgan Stanley as well as reports that Federal Home Loan Banks in the U.S.were allowed to purchasemortgage-backed bonds lowered the perception of credit risk in fixed income securities and tarnished the investment appeal of government bonds.
Outlook
Global equity markets have been staging a rebound since March 18,2008,with the Dow Jones Industrial Average index and the S&P 500index climbing 5.10%and 6.57%,respectively,after Goldman Sachs,Lehman Brothers,and Morgan Stanley’s 1Q2008earnings reassured investors that they had sufficient capital to survive.Technical analysis shows that many equity benchmark indices have recently surged above their main resistance level,but their rebound is currently losing momentum,which is reflected by a gradual decline of their trading volume.As such,it appears that many equity markets are currently consolidating their recent gains and are awaiting further catalysts to determine their next moves.Meanwhile,the latest reports on many important economic barometers such as consumer confidence,industrial activity,retail sales,and unemployment continue to reflect a deteriorating U.S.economic fundamental and have yet to depict signs of bottoming out.Also,corporate earnings growth is being adjusted downward.With these factors lingering in the financial markets,the outlook for global equities looks set to remain challenging in the coming quarters.
With the growth factor shrinking and the risk of credit crunch unlikely to dissipate in the near term,the market believes the Fed will continue to lower U.S.interest rates until the U.S.economy revives.Such a scenario is reinforced by reports that U.S.inflationary pressure as reflected by the Core PCE index and the CPI index appears contained,even though many commodities continue to be traded at sky-high prices.As such,these catalysts should continue to weaken the U.S.dollar but support the value of government bonds and precious metals.
Source:Lipper
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