December 2008
November witnessed further high levels of volatility in markets, with the FTSE All-Share Index
falling 1.7% in total return terms, as attention shifted from the financial market crisis to its
impact on the real economy. The shock from the near paralysis of the financial system has led
to a sharp phase of destocking, as companies scramble to align production schedules closer
to underlying demand. Within the UK, the FTSE 100 proved to be more resilient given its
broader diversification of revenue stream, while smaller companies suffered due to ongoing risk
aversion, falling by 7.6% over the month.
Economic newsflow in a global context deteriorated rapidly, US unemployment reached a 14
year high, house prices continued to fall and estimates of third quarter GDP figures revealed
that Japan and the Eurozone were the latest regions to officially fall into recession. This
prompted rapid response from governments and central banks, the MPC cutting by base rates
by 150 bps in November and a further 100 bps subsequently. Accompanying this has been a
sharp depreciation of sterling, one of the reasons why the UK stockmarket was more resilient
than its developed market peers. While this depreciation will put upward pressure on import
prices, lower end demand and the slump in commodity prices will more than offset, CPI falling
from 5.2% to 4.5% in October, the largest fall since records began.
Given the uncertainty, not surprisingly a number of the defensive sectors performed well,
including Food Producers and Telecomms, although Travel & Leisure and Life Assurance were also
amongst the strongest areas. Mining continued to be weak, while Utilities saw some profit taking.
In terms of activity, we sold out of Lloyds TSB on concerns over the proposed takeover of
HBOS, and reinvested the proceeds in Barclays, purchasing the Mandatorily Convertible Notes
and the Reserve Capital Instruments, both of which provide an income for the Trust. Activity
elsewhere was quiet, adding to a number of holdings including Land Securities, Rolls Royce
and Prudential.
Source: Monthly Factsheet Aberdeen Asset Managers Limited