Andrew Dalton was the Founder and Chief Investment Officer of the Dalton Strategic Partnership, and previously spent 30 years at Mercury Asset Management in a variety of senior investment positions. His market review appeared weekly on Independent Investor. His seasoned judgments about what has happened and what is worth taking note of in the markets became required reading for me. Since his passing Ruper Caldecott, CIO of the Global Asset Allocation Team at the Dalton Strategic Partnership LLP, now gives us his weekly market review.
Equity markets slipped last week. In US dollar terms, the weakest markets were the European markets, the UK and emerging markets, respectively down 2.56%, 1.22% and 1.81%. The tensions within the Eurozone continue. The weekend election in Finland, which is likely to hand a majority to those who would prefer to make no more concessions to Greece, Ireland and Portugal, provides another reminder, if the results of local elections in Germany had not been enough, that Northern Europeans are less willing to bail out failing counties.
Last week was a positive one for equity markets, although Japanese equities crumbled further. The MST Resources fund, however, rose significantly as did its sister fund, the Melchior Exploration fund. North American equity markets were sluggish ahead of the US first quarter earnings reporting season, which begins tonight with the results from Alcoa. Markets have been watching with some fascination the political disputes in the US over budget cuts, which ran on until within an hour of the deadline on Friday night. Both the yen and the US dollar weakened against their European and Canadian counterparts last week.
US equities are remaining comfortable. It seems reasonably clear that Japan was set for a further upward move in economic activity prior to the earthquake and tsunami. That has been thrown off course by a major natural disaster and the fall-out from the nuclear problems at Fukushima. Domestically, the disaster has led to a shift in consumer attitudes in Japan towards great caution. In the short-term, there has been considerable industrial disruption, although instincts say this will be short lived and, indeed, has been substantially ameliorated already.
Last week saw a recovery in equity markets and in the US dollar. The recovery though was not uniform – Japan missed out but North America did particularly well. The MST Resources fund bounced sharply, followed by the Melchior North American Opportunities fund. There remain lots of reasons to be cautious – continuing difficulties in the Middle East, fears of nuclear fall-out in Japan and the on-going wrangling by Eurozone nations about how to handle the peripheral countries of the system – Greece, Ireland and Portugal.
Last week was a violent week. Investors were whipped into a degree of hysteria over developments in Japan and the Middle East that was almost certainly unjustified. The Japanese equity market, in particular, fell sharply, although there was some recovery on Thursday and Friday. It is difficult to gauge the extent of that recovery because the Japanese market was closed today. The other area that suffered notably was various raw material prices, including uranium, and this had an impact on the MST Resources fund.
Last week was thoroughly difficult. In the US, there was one near 90% down day and then a 94% down day on Thursday - only partially recovered on Friday. Investor fears are clear and varied. In respect of Libya, the Western allies in NATO appear to lack agreement on intervention leaving existing regimes a free hand to be brutal. Oil prices have fallen for five days in a row. The European authorities edged towards some further accommodation for Greece and by implication for Ireland and, in due course, Portugal.
Last week was choppy with a near 90% down day on Tuesday and a near 90% up day on Thursday. Equity markets continued to be in thrall over events in Libya and the oil price was higher at the end of the week than at the beginning. Overall the S&P index was off 0.46% although the MSCI AC World index was up 0.15%. There was a recovery in Asia ex-Japan and in the emerging markets generally. The Melchior Asian Opportunities fund rose by 3.39% despite some weakness today.
Last week was choppy. It was also the week of Libya and of higher oil prices. A rise in the price of oil is essentially the equivalent of a tax increase paid by energy users to energy producers. In the case of oil, the markets are transferring money de facto from the private sectors of the world economy to the public sectors, given that oil profits are captured almost universally by states or governments. A massive transfer of wealth to the public sector is rarely conducive to economic growth.
Equity markets continued their general advance last week. Economic momentum continues to firm up – a thought attested by Goldman Sachs' leading economic indicator momentum measure. However, political battles lie ahead. The youth revolution in the Middle East marches on – Libya and Bahrain the latest hot spots. There are protesters on the streets of Tehran too.
Last week, markets fluctuated with the ups and downs of Egyptian sentiment. Mr Mubarak's departure at the end of the week ensured that the US equity market closed higher. That was followed through in Asia on Monday morning of this week. The Japanese equity market was also up, having been closed for a public holiday on Friday. Money, though, continued to flow out of Asian and emerging markets. The perception of a US recovery is becoming more entrenched.