Market Review ? July 2010


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UK (all returns are in ? unless otherwise stated) The FTSE All Share Index enjoyed a positive month in July, rising 6.9%, boosted by largely positive results from the st

UK (all returns are in ? unless otherwise stated)

The FTSE All Share Index enjoyed a positive month in July, rising 6.9%, boosted by largely positive results from the stress tests on European banks, increased confidence in the global economic recovery and a change in leadership at BP. Waning concerns over sovereign debt and a pick up in merger and acquisition activity (M&A) were also beneficial.

Leading performers over the period included financials, oil & gas and basic materials stocks, as more cyclical sectors outperformed as risk appetite returned. Oil & gas stocks rallied this month, as prices rose, while BP?s progress in plugging the oil leak in the Gulf of Mexico also proved beneficial. Among financials, banks also had a sterling month, rallying on a series of positive earnings announcements and the results of the European stress tests. Mining stocks (notably base metals) also rallied sharply, as the demand outlook improved amid speculation that the Chinese government would ease measures to curb the country?s economic growth.

A revival in M&A activity was also beneficial, with numerous deals under discussion.

Europe (all returns are in ? unless otherwise stated)

The MSCI Europe Index rose 5.0% in July as the release of encouraging bank stress test results, coupled with a number of positive earnings reports, helped lift investor sentiment. Only seven out of ninety one banks failed the stress tests. This was positively received as a number of analysts had predicted a worse scenario. The results boosted the performance of financials stocks and the sector ended the month with double digit gains.

In contrast, the health care sector struggled as European governments including Germany, Spain and Greece are cutting their health spending as part of austerity measures.

US (all returns are in US$ unless otherwise stated)

The Russell 1000 Index gained 6.9% during July, as the US equity market rebounded from a retreat in May and June, after a series of better-than-estimated earnings forecasts from a number of leading US companies lifted confidence in the economic recovery. Markets advanced in spite of concerns over the macroeconomic outlook amid suggestions the Federal Reserve could again intervene to stimulate the economy if necessary. Analysts suggested that the threat of a ?double dip? recession had receded, after economic releases (jobless claims) and the earnings outlook strengthened.

Stocks enjoyed their biggest weekly rally in a year, as retail sales grew at the fastest pace in four years and the IMF projected global economic growth of 4.6% in 2010. Improved new-home sales, renewed appetite for risk and an increase in business activity spurred US stocks to rise further.

However, markets trimmed their biggest monthly rally in a year in late July after economic reports and earnings forecasts from technology companies disappointed. FedEx and United Parcel Service Inc led stocks higher as package-delivery companies – widely considered harbingers for global growth – gained as 2010 profit forecasts were raised on increased demand for international express shipping. However consumer stocks slipped back after reports showed confidence among US consumers had declined.

Japan (all returns are in Yen unless otherwise stated)

The Topix Index advanced 0.9% during July as the Bank of Japan (BoJ) upgraded its growth projections for this fiscal year, with the economy expected to continue recovering on the back of healthy exports and a pick up in domestic demand.

Although it stuck to its cautiously upbeat tone on the current shape of its own economy, the government expressed greater concern about repercussions from a possible economic slowdown in Europe and the US.

At a sector level, the technology sector was the best-performing amid a raft of positive earnings and companies raising their full year net income forecasts.

Asia-Pacific (all returns are in US$ unless otherwise stated)

The MSCI Asia Pacific ex Japan Index rose 7.5% led by cyclical and financial sectors. The resources sector was the best-performing on hopes that China?s insatiable demand for commodities would remain strong, while financials gained on the back of a strong earnings season.

Emerging Markets (all returns are in US$ unless otherwise stated)

Emerging market (EM) stocks enjoyed a very positive month, after concerns eased over the sustainability of economic recovery following the IMF’s decision to raise its global growth forecast and some of the world?s biggest companies delivered second-quarter earnings well in excess of expectations. Gains were reinforced by more upbeat news from Europe, while corporate earnings reports and encouraging data releases also helped lift sentiment. EM stocks benefited from their longest winning stretch in five weeks, driven largely by upbeat corporate earnings in the US and the anticipation of similarly strong results from Latin American economies.

The MSCI Emerging Markets Index gained 8.3%, while China?s Shanghai Composite Index and Brazil?s Bovespa enjoyed their best monthly advances in a year. Gains were pared back late on amid renewed concern that slowing global growth will reduce earnings.

Your portfolio

Your equity portfolio would normally include shares or funds covering different regions, with the quantities dependant on your risk tolerance, objectives and personal circumstances. Talk to an experienced financial adviser like Blevins Franks Financial Management Ltd to establish the allocation most suitable for you.


Russell Investments Limited is the source of all data; any opinions expressed are those of Russell Investments Limited and do not constitute investment advice. Investors should be aware that past performance is not a guide to future returns. The value of investments and the income from them can fall as well as rise and investors may get back less than the amount invested.


9th August 2010

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.