The severity of the financial crisis impacting economies worldwide is now understood by Governments. Following concerted cuts in interest rates and economic stimulus packages, they are now implementing unprecedented levels of quantitative easing in an attempt to avoid deflation and lessen the pain of an economic collapse.
Continued deleveraging is not a function of value, instead investors have been selling indiscriminately to raise cash. This leads to dislocation in many areas of the economy, the financial sector being the most systemically important hence the need for Government intervention.
Determining the future global landscape and positioning ourselves for the recovery are our major preoccupations. Investors are moving away from crisis management and are now looking for the clear signs that policies are having an effect. Although the outlook for 2009 is unfavourable, cash has become less attractive as interest rates continue to fall. This will increase investors’ appetite for riskier assets as the year progresses.
Stock markets are beginning to see some resilience with markets responding positively to negative news. Equity market barometers such as market breadth, sentiment and valuation support now tentatively suggest that a bottoming process is taking place.
Our Fund outperformed during an extremely volatile November. We expect volatility to continue and remain both cautious and prepared to take advantage of market dips for those strong franchises that will survive the downturn.
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.