Green January

Though economic conditions in Europe remained uncertain, financial markets in 2012 took off on a positive note across the globe as the appetite for risk returned globally and liquidity found its way back into the capital markets, both in the developing and emerging economies.  This may be a sign that as Europe continues to struggle out of its woes, investors across the globe are beginning to live with it!

According to data from EPFR (Emerging Portfolio Fund Research) Global, investors rushed into emerging market equity, debt funds and U.S. equity, bonds and high-yield funds in the week ending January 25th. Overall, equity funds gained a net $8.62 billion and bond funds gained a net $6.08 billion while money market funds saw net outflows of $7 billion, indicating increased appetite for risk.

In our last Market Outlook we were bullish on the recovery of the US economy which has since been evident. Following reports from the Institute for Supply Management (ISM), economic activity in the manufacturing sector expanded in January for the 30th consecutive month and the overall economy grew for the 32nd consecutive month. The PMI registered 54.1 percent, an increase of 1 percentage point from December's seasonally adjusted reading of 53.1 percent. Prices of raw materials increased for the first time in the last four months. Manufacturing is starting out the year on a positive note, with new orders, production and employment all growing in January. This was backed by a report from ADP Employer Services based on payrolls indicating that companies added 170,000 workers in January.

The European manufacturing sectors improved in January, raising optimism in the market that the euro-area region is on the right track to avoid slipping back into another phase of recession despite the two-year debt crisis. Though numbers out of Europe are still below the key 50 level, which signals an expansion, they did beat market estimates; the UK manufacturing sectors on the other hand improved significantly beyond expectations to 52.1 from the revised previous of 49.7.

In the recently held summit in Brussels, over 90% of the EU countries agreed to a new and tougher measure to enforce budget discipline in the euro zone – however there was still no defined resolution to the sovereign debt crisis or a convincing plan to revive fragile economies across Europe. Following the encouraging European summit, recently released manufacturing data and an improving bond market, most investors are beginning to believe that the EU leaders may be able to soon come up with an agreeable solution to combat the escalating debt crisis and save the Euro. In addition, inflation is still relatively high in regards to the ECB target, where the CPI annual flash estimate for January showed that inflation lingered at 2.7%, which in result means that the economic activity is running and signs of a recession are still unconfirmed.

In regards to increasing faith in a “soft-landing” for China’s economy, we are now beginning to see investors responding to some big sell-offs which were experienced in 2011 and the general shift among emerging markets to a more accommodative fiscal and monetary policy. The PMI manufacturing for January showed that the performance of the Chinese manufacturing sector expanded unexpectedly to 50.5 from 50.3, beating the median estimate of 49.6.

Going Forward

Following the release of better-than-expected manufacturing data from several major economies, the US Dollar cost of buying gold touched the $1760 levels – it’s highest since early December – with commodity and equity prices also ticking higher. Our portfolios hold 8–13% in physical gold and are exposed to commodities and global equities through the mixed asset funds.

As markets are looking much more promising, and not wanting to miss out on the upsides, we have now bought in to U.S. equities and commodities. As gold continues to increase in value we will review this in the near term, as it may be ideal to sell out and realize gains.