The UK FTSE All-Share index fell 1.7% during the month. This result masked a big move downwards in the middle of the month which was subsequently reigned in. Noticeable during the month was a sharp rise in gilt prices as investors started to ponder the possibility of deflation in the UK economy.
Interestingly, the oil and gas sector performed strongly despite the sharp fall in the oil price as investors felt reassured by the majors’ strong balance sheets and a robust message concerning future dividend policy. On the other hand, the mining companies performed woefully, as the BHP/RIO merger was called off, and balance sheets of some industry players were questioned. Elsewhere, telecoms performed well on cost cutting initiatives, whilst investors fretted over the heavily indebted utility companies.
The recent sharp drop-off in demand noted across many economically sensitive sectors has been dramatic. It is important to assess how much of the demand reduction is structural as opposed to destocking and aggressive year end working capital management. In truth, we will not know the answer to this for several months. Given the massive fiscal and monetary stimuli being applied on both sides of the Atlantic, it is apparent that some stocks are discounting near term outturns which are extraordinarily pessimistic. Thus, some good opportunities are beginning to present themselves despite the poor economic outlook.
Source; Lipper Hindsight to 30.11.08
Travel and Leisure
As the cost of fuel remains high and consumers continue to reign in spending, demand for cheaper modes of transport is rising. We expect bus and rail operators to benefit most in this environment as rising fuel costs can be absorbed by an increasing volume of passengers.