Greetings everyone! For our readers in China, we hope you enjoyed the short week last week for Qing Ming festival. It was a nice 3 day break which was just about long enough to catch up on work, some R&R, and get prepared for the weeks ahead as Q1 earnings season are about to kick off this week, along with a heap of economic data, so let’s see what’s on the agenda!
Last week saw some drops in the global indices with the S&P down about 1% on the week, and the UK FTSE 100 and Hong Kong Hang Seng both down around 2% on the week. This was due mainly to US employment data which was the lowest in 9 months along with some continued concerns about the strength of the global economy. This is the volatility we expected and continue to expect, as global growth remains fragile but resilient.
Over in Europe, Mario Draghi, President of the ECB, once again stepped in and assured the people last week that the ECB will do whatever it takes to keep moving forward and get past any obstacles. The last time Draghi came out with a similar speech was in the summer of last year when Europe was all over the headlines. And this was not only about Greece, but Spain, Portugal, and Italy as well. And his speech last summer was enough to calm market concerns at that time, so we’ll have to see if his power of words will once again calm concerns! It certainly helps that with the current low inflation rates, the ECB has a bit more ammunition in their monetary bag of tricks.
But stimulus and monetary intervention only go so far. We’ve said it before, and will continue to say it – what we really need is job creation! So hopefully they’ll refrain from turning to temporary fixes and start to focus on job development and long term sustainability. What do you mean by this you ask? Well, let’s take a look at China and see what they’ve been doing recently. China’s new leadership have set growth targets at 7.5% for 2013 which is the same as 2012 targets. However, the dynamics in terms of the way they will achieve this target are changing to more of a domestic based demand rather than a purely export driven economy. The China services sector grew 4% compared to last year and now accounts for around 45% of China’s GDP. In comparison, the USA’s services sector accounts for around 90% of US GDP. This is one example of how China is evolving to maintain their economic growth, and a GDP target of 7.5% is pretty attractive when compared to the other economic powerhouses!
With all that said, it always comes back to fundamentals and we’ll start to get some data trickling in this week with corporate earnings, including that of Alcoa, Chevron, Bed Bath & Beyond, JP Morgan, (among others), so it will be interesting to get the initial reports from a multitude of different sectors. Analysts’ expectations continue to range considerably across the board so be sure to hold a diversified and balanced portfolio while things play out in the markets over the coming weeks.
For Austen Morris Associates’ investors – talk with your advisor about any repositioning to take advantage of markets at this time. For more information about Austen Morris Associates please visit out website.
Co-Head of Portfolio Management,
Darren Cox
Austen Morris Associates Wealth Management & Investment Team
www.austenmorris.com
