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Offshore Asset Management Trends Chris Vellacott considers the latest equity market trends Equity markets on both sides of the Atlantic have come under selling pressure on account of uncertainty over where the world economy is headed.
The greatest headache is a high oil price, which has unnerved many investors who remember how soaring costs of crude sparked off recessions in the past. Many analysts believe it is inappropriate, however, to draw comparisons with the oil shocks of the 1970s. Economies have moved on and service industries have surpassed the old, oil-fuelled industries in terms of importance. “You shouldn’t draw comparisons with the 1970s as we are now in a much more disciplined environment and a very different situation,” says Peter Lucas, global investment strategist at Ashburton Asset Management.
Oil prices are widely accepted as having reached their peak and some market watchers expect prices to slide to around US$20 per barrel from the current level of over US$30. Offshore Asset Management Trends & The World The world has calmed down over the fuel crisis after widespread panic early last month. Wall Street did not relish the prospect of the likes of Hugo Chavez, Venezuela’s controversial president, exerting an influence over world markets. So what are the immediate prospects for equity markets around the world?
The UK has experienced a steady slow down in economic growth, with a cooling property market and a weaker pound. Economic data also indicates manufacturing and services sectors are experiencing slower growth.
But monetary policy makers are split over how to react to this. Interest rates have been kept on hold for the time being, but there is increasing evidence that some at the Bank of England do not intend to let this trend continue.
Overall, however, economic fundamentals for the UK are benign and few expect a full blown recession despite indications that business confidence is on the wane. Offshore Asset Management Trends & The Stock Markets The stock markets went on a downward streak throughout the second half of September and many fund managers believe valuations have become more realistic. The US appears to be heading for its much heralded ‘soft landing’ and optimists still like to talk about the ‘new paradigm’ of economic growth free from inflationary pressure. The potential for trouble comes from a high oil price, however, as unlike Europe, tax on fuel is extremely low in the US. This gives the government little scope to ease the pressure of more expensive crude because they cannot compensate with tax cuts. Instead, the US took an alternative approach and released some of its emergency oil stockpile onto the market, much to the irritation of OPEC.
The forthcoming presidential election also adds to the air of uncertainty, particularly as the result is by no means a foregone conclusion.
The other cause for concern on US markets is a perpetually weak euro across the Atlantic, which hurts exports to Euroland. In acknowledgement of the threat, the US Federal Reserve participated in last month’s massive intervention to prop up the flailing currency. Offshore Asset Management Trends - Japan Continues Japan continues as the sick man of G7 with minimal economic recovery to pull it out of the doldrums. Although there are signs of growth, and the central bank put an end to the zero interest rate era, the government concedes Japan is not out of the woods yet. The Japanese government continues to propose public spending packages to stimulate the economy, and pays for these measures with bond issues. One analyst told Investment International that Japan is on the verge of becoming the world’s largest bond market as a result (See page 57). In terms of equities, few managers are selling in other parts of the world to buy Japanese stocks. Sentiment towards Asia remains mixed because economic health varies from country to country. Hong Kong appears to have staged a solid recovery since the Asian crisis of 1997 but other markets, such as Taiwan and Singapore, show signs of slowing. Thailand, meanwhile, is still not attracting investment managers in droves as its recovery appears to be more precarious. 
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