Newsletter August 2010

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July fillip

Not for the first time, a month brings massive changes in sentiment and market direction. One thing that is gathering speed is the coalitionís efforts to get all the bad news into the public domain and as soon as the recess is over they presumably will have a host of policies ready to go before Parliament for discussion and ratification. The economy still looks dire going forward and hardship looms for many people.

The July fillip that I make reference to is the kick in the UK market making July the best month since March. This in spite of a 1.1% fall in the last week of the month.

Markets

The star of the global scene has to be the recovery in Shanghai composite index. From a low on July 2 it powered higher for the remainder of the month and took the S&P 500 and the Eurostoxx 300 higher with it. The FTSE 100 is up 6.9% on the month.

The robust movement in Shanghai after the Chinese government intervention a few months ago to cool their economy must be seen as positive for the global economy and will stimulate commodities and has already I believe reversed the very weak trend of the Baltic Dry Index. The index now stands at 1967 up from about 1200 early in the month, but a far cry from 4200 on May 26.

There are still many doubts surrounding the US economy, with job creation a priority but little sign of life in the figures issued. Although analysts have been forecasting higher earnings next time round (2011) the hopes of investors could very easily be dashed by this apparent slow down in the enormously important US economy. A second recessionary period would be very bad news indeed.

Sovereign debt is still a worry but banks got a cautious accolade because recent stress tests showed most but not all were in decent shape

Nobody will be very surprised that the VIX index is a touch lower than last month at 24.24 but rose slightly on Friday. It still remains a fair bit higher than the long term average of 20.

Commodities

Oil has gone a little higher and along with other commodities has probably been seriously stimulated by talk of China strength. Gold has fallen over the month but may now be offering a useful entry point perhaps caused by profit taking after itís all-time high.

UK Stocks

New highs were 24 and new lows 19. In the sectors list since January 1st, it is a total reversal from last month with 32 sectors higher and 16 lower. Oil and Gas producers are still the worst at minus 15.8%. Personal Goods meanwhile are the top risers at 43.3%. Seems to suggest that somebody still has money to spend but that sub-sector only has four constituent companies which may include SSL International which is now a takeover target.

Mobius investments

News is sparse from Mobius members. It seems that work has occupied our members much more than usual, allowing little time for e-mail chatter or investment activity. There was no meeting held. Our portfolio has been fairly good with Persimmon rising after solid results. Fears in the Housebuilding sector a still causing some weakness though. China Shoto has just shown signs of perking up a little after a few weeks at a serious low.

Mobius membership

One piece of sad news relates to the resignation of Mehrdad. We shall be sorry to lose him but understand that with all his commitments he will find it impossible to attend any meetings and it has always been a problem for him previously in any case. We have thus lost three members in quick succession which reduces our investable assets. Hopefully, when circumstances take a turn for the better we might see one or other of Anita or Mehrdad back in the club at some time in the future. We all wish them a successful period in their chosen careers and also happy investing if they continue off their own bat.

Martin Longman - Acknowledgements to Daily Telegraph and FT.