Markets & Data - UK market looks attractive again
Increased optimism among UK fund managers about the prospects for UK equities may give the market some much-needed support. But five-year gilt yields are up by half a point.
Increased optimism among UK fund managers about the prospects for UK equities may give the market some much-needed support. But five-year gilt yields are up by half a point.
UK stockmarket
among UK fund managers about the prospects for UK equities may give the market some much-needed support. But five-year gilt yields are up by half a point. Following October’s fall, investors had convinced themselves that the Bank of England would refrain from tightening monetary policy. November’s base rate rise therefore came as an unexpected blow. However, recent weakness has brought the market back to historically attractive valuation levels.
Overseas equities
The economic repercussions of instability in Asia continue. The Japanese market plunged to levels last seen in mid-1995 as investors grew increasingly gloomy about the outlook for growth. The direct economic impact may be less in the US and Continental Europe, but further stockmarket volatility seems likely.
Interest rates
The US Federal Reserve has once again left interest rates unchanged, even though recent economic data has suggested that the pace of growth is picking up. Although expectations have increased that rates will rise over the next few months, long bond yields fell to below 6.25%, their lowest levels of the year as investors sought a safe haven from equity market uncertainty.
Gilts have lost some of their lustre as earlier speculation about official commitment to Emu proved optimistic. This was most noticeable at the short end: five year yields have risen almost 0.5% since September.
Exchange rates
A combination of rising German interest rates and unchanged US rates has contributed to the dollar recently hitting a five-month low relative to the deutschemark. The yen fared even worse, reaching its weakest level against the dollar since the end of April, as currency depreciation increasingly seems the only option the Japanese government has to stimulate growth.
Market data supplied by Britannia Investment Managers. Tel. 0141 248 2000.
Expressions of opinion contained within this document are subject to change. Britannia Investment Managers Limited is regulated in the conduct of investment business by IMRO.
Sources: Yield curves: Bloomberg; other charts: Datastream /ICV.
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