Our Investment Commentary for Q1 2013 (1 January – 31 March 2013)

Markets have enjoyed a very good start to 2013 overall with strong returns in almost all global equity markets during the first three months of the year, albeit with continuing high levels of volatility.

Starting with the positives, the US ‘fiscal cliff’ has been averted, at least for now, and the US economy is showing promising signs of recovery, with some encouraging corporate profits, an improving housing market and more buoyant US consumer. Indeed, despite anaemic and fragile global economic growth figures, overall the trend is encouraging for recovery in most parts of the world.

In continental Europe, the euro has been remarkably stable despite the crisis in Cyprus and a political stalemate in Italy. German trade figures have been boosted by demand from Asia, which should benefit other exporting companies across Europe later this year. China in particular has made the transition to its new leader and appears set on a return to economic health. There are positive signs too in South Korea, Taiwan and Indonesia.

Dark Clouds Remain

Of course, it is not all good news. The response to the banking crisis in Cyprus has undermined confidence in the competence of both European politicians and European institutions and done nothing to assuage concerns regarding the risk of contagion. Greece too has temporarily gone off the radar, but the situation there remains unresolved.

Closer to home, the UK has lost its coveted ‘AAA’ credit rating, which whilst expected will lead to an increased cost of borrowing. The dramatic fall in sterling over the last few months, however, is far more significant – I have highlighted the impact on market returns below, but for the average consumer, it is bad news as imported goods, especially oil and petrol which are priced in dollars cost more, leading to inflation and a squeeze on living standards as wage growth remains low. As the UK government continues to grapple with a debt mountain and low levels of growth, sterling is likely to remain under pressure.

Focus on Economic Growth

Markets have continued to remain well supported by an abundance of liquidity provided by central banks, such as the ‘quantitative easing’ in the UK. The focus for most politicians is to deliver economic growth to increase tax receipts and reduce the enormous level of debt, whilst doing enough to reassure markets that inflation will not run out of control as the foot remains on the pedal. The saving grace is likely that with the level of debt still outstanding, it is likely to take some time for the effects of inflation to feed into the economy.


The table below shows the performance of key global markets in local currency terms, US dollars, and UK sterling terms, including dividends re-invested between 1 January and 27 March 2013:



%   change (local currency)

%   change (USD)

%   change (GBP)







FTSE Europe ex-  UK





S&P   500





Nikkei 225




Hong Kong Hang Seng





FTSE World




 UK Gilts FTSE All Stocks




In local currency terms, Japan has outperformed very strongly, the US and UK both showing gains of around ten percent, and continental Europe and Hong Kong at the back of the pack. However, it is very striking that currency has played an enormous role over the period due to a large appreciation in the dollar and weak sterling. For a UK investor, this has boosted returns from overseas investment and flattered returns.

[Matthew Clark, Seabrook Clark Ltd, 5 March 2013]

Please note, our Investment Commentary is our view of markets and does not constitute investment advice. Past performance is not necessarily an indication of future returns; the value of investments and any income from them is not guaranteed and can fall as well as rise. If you would like investment advice on your individual circumstances, please do not hesitate to get in touch.

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