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Global Economies and markets

The New Year seems to be starting out as turbulently as 2009 finished. China expected to commence serious fiscal tightening within weeks in order to cool a scorching economy. The US issued higher employment numbers than expected, while some US company results turned out to be unexpected, both above and below predictions. Last week saw most base metals prices seriously awry with precious metals also settling down slightly. When Obama made his strong attack on the US Banks with threats of break-up etc the stock market, especially in the US took fright and now the chatter is all about a correction, mooted to be 20-25%. Also in direct response the VIX (worry bead) index reached its most recent high a week ago only to soften a little towards the weekend. Emerging markets indices also went on the back foot over the last couple of weeks but this should be seen in context of the enormous rises recorded since March 2009. In some cases they have doubled and others merely up by 75%. Not bad if you had exposure. What are the worries in Euroland? Well, there are plenty, with the Greek government almost bust but not a great deal worse than Spain, Ireland and others. The UK is also attracting much unfavourable comment with ratings agencies sounding the alarm.

Last month, worries were being stirred because QE was due for cessation in February which we have now reached. Will the central banks in UK and US turn off the tap and begin to wrap up the scheme. It would seem a dangerous step even if strictly warrented. But inflation for some is the bogie man. Although others see it as a temporary problem which will soon recede into 2011.

UK Economy & Politics

The three main parties continue their slugging match over plans to battle the deficit. The Liberals take it in turns to slag the other two but it seems to me they heap most of their opprobrium on to the Tories suggesting they see them as the ones to beat and take seats from. Every few weeks the government wins back a couple of percentage points in the polls, only to lose them a fortnight later when some other poor news item appears. I am sure that the huge numbers out of work and the others still fearing redundancy or on short time must be wondering where it will all end and which party to dump at election time and its usually the governing party that comes of worst.

Commodities

Oil has been weak of late although there has been little benefit at the pumps for a week or two. Gold has fallen as I foresaw last month, as have the other metals both base and precious. Only a few commodities have shown much strength such as sugar and potash to name a couple. This general weakness and the worries about the Chinese economy facing Government financial strait jacket seem to have led to a serious drop in the Baltic Dry Index (based on ship chartering rates). This index now stands at 2848 compared with early November 2009 when it almost reached 5500.

Currencies

Another trend which has reversed recently is the dollar which has strengthened considerable against most currencies , including sterling and helped greatly by Euro weakness due to Club –Med countries looking sick and in need of a German bail-out.

UK Stocks

Four week highs and lows are almost minimal at the month end. New highs and lows are evenly matched at 18 and 13 respectively but there were only singletons in most of the sectors. That delicate balance is mirrored by the sector table in January which shows that about half of all FTSE sectors are positive but slightly more are negative. The highest rising sector is Forestry & Paper +6.57% and the worst performers were Mining (-9.16%), Basic Materials (-8.87%) and General Retailers(-8.75%).

Mobius investments

Mobius invested quite heavily following the December meeting. One share, China Shoto, the back-up battery manufacturer, has done particularly well and a couple of days ago announced that the next results would materially exceed expectations. We do retain a conditional buy on this share but one wonders if it will fall back to allow the purchase or whether we will have to adjust the purchase price. This announcement led to a sharp jump in the share price on the day which took it further out of reach so we may have to reconsider our options.. The other choices understandably performed more in tune with the general market, but should come good in time we hope. Shanks Group is still awaiting the outcome of bidding by predators and this weekend saw news which suggested Carlyle Group may raise their offer to 145p per share in an effort to seduce the Board of the company. We live in hope.

Martin Longman - Acknowledgements to Daily Telegraph and FT.