Market performance analysis - Essay Example

Equity investment may indeed be subject to uncertainty and volatility as investors fluctuate between fears about liquidity flows and economic cycles; and the well-timed holding of bonds may serve to diversify risk and to indemnify investors against the dangers of weakening economies. The short-term uncertainties of stock market investment should be acknowledged, but equities remain the long-term champions of real growth in income and capital1. 2. 0 Portfolio objective The aim of this portfolio is deliver a minimum annualized return of 20% with the risk under 6%.

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Portfolio Methodology The portfolio methodology is based on five stages of analysis, which are macroeconomic analysis, industry analysis, company analysis, asset allocation analysis and portfolio performance analysis. 4. 0 Investment strategy The goal is to invest in a diversified portfolio of equity. In order to meet this objective, a strict investment strategy of sector rotation is adhered to so as to enhance returns and at the same time manage risk. This will mean watching the economic trends within the selected national economies that have been chosen as an investment destination.

The level of risk is then determined by the current phase of the business cycle, which determines the type of asset class that will be appropriate for that particular period i. e. as the risk level changes, asset allocation and class also changes. This will be done in order to manage the risk associated with the selected economies. 5. 0 Global Analysis The global economy has staged to dramatic bounce-back with growth accelerating across most rich countries, according to reports from top investment banks.

The good news is most pronounced in the US, the world’s largest economy, which suffered a disappointing end to two years ago. The UK economy is also doing better, boosted by a return of house-price inflation and faster consumer spending, as are the euro zone and Japan. 2 This year, the world economy is expected to grow at an almost unchanged pace of around 4. 5%; but this time with a somewhat more even distribution across the major regions. In North America, US expansion of real GDP is expected to slow down somewhat, due to a less accommodative monetary policy, while in Asia, Japan is likely to continue its recovery.

However, the Chinese economy remains the engine of economic growth in Asia, although the fast pace of expansion is expected to weaken slightly. The pace of expansion in the European economy is expected to increase. Based on the uptrend in the economic cycles within these regional economies, it is possible to find investment opportunities within these regional markets depending on the necessary fundamentals as well as technical analysis that support growth in these markets. UNITED KINGDOM UK’s economic performance remains satisfactory if assessed in a long-term context.

But the economy has slowed strikingly, and confidence is weak. Britain’s productivity record is very mediocre3. M0 rose 2. 3% on a monthly basis, the fastest pace since December 1999 and was up 6. 5% on the year – the biggest rise in more than a year and a half. 4 Although data for money supply indicates that the UK economy is going through a rather inflationary period, overall picture depicts a dis-inflationary scenario. The FTSE 100 share index, another reliable leading indicator which hints on the direction and turning point of the economy ended recent session higher, hitting 5,863.3 — its highest level in just under 5 years5.

This rise reflects close correlation between growth in monetary aggregate and stock market prices. However, rise in unemployment figures from 4. 7 to 5. 16 percent may not necessarily indicate the economy has reached saturation point (market top), but rather maybe reflecting the structural changes the economy is undergoing7. Figure 1: Employment Rate falls to 74. 4% in 3 months to Jan 2007

Source: National Statistics8 Consumer price inflation rose for the first time in five months to meet the BoE’s target of 2 per cent in February, from 1.9 per cent in January, which analysts read as reducing the chances of a cut in interest rates. The core measure of inflation, which strips out more volatile fuel and food costs, rose to 1. 4 per cent from 1. 3 per cent. 9 Figure 2: CPI AND RPI Source: National Statistics 6. 0 Industry Analysis (Sectors selection) The stage of the industry life cycle has indicated the market trend and a good market performance indicated a good investment opportunity. The sectors selection is based on the industry market performance analysis and industry life cycle analysis.