Market research from Internaxx July 2009 Print
Tuesday, 28 July 2009 10:31

This section is brought to you by the Luxembourg based online broker Internaxx. Market analysis is provided by Fortis Investments, the asset management arm of the BNP Paribas Fortis group.
Mixed macro data puts equity rally on hold (source: Fortis Investments)

While most manufacturing and trade data have bounced from extremely depressed levels, consumer and labour market data remained generally poor. Markets have taken notice and the equity market rally has stalled.

In the US, a company survey showed that 467,000 jobs were scrapped in June while the labour force shrunk by 155,000 people for a net 218,000 increase in the number of unemployed, the smallest increase since September last year. Indeed, unemployment only rose by 0.1%. However, average weekly hours worked fell, indicating that companies are also cutting hours. In the event of an economic upturn they will likely expand hours first, suggesting that the recovery may be a jobless one, which would translate into suppressed consumer demand. On a more positive note, the ISM non-manufacturing index rose to 47, the third straight improvement and the highest it has been since the near-collapse of the financial system last fall.

Unemployment in the eurozone increased to 9.5% in May. The increase has been particularly steep since September 2008, leaving consumers cautious. Retail sales declined in May and while the eurozone savings rate is sufficiently high that consumers have the funds to drag the economy out of recession, they are unlikely to do so for now.

Data from Asia was mixed. Japanese machinery orders fell in May as sliding profits forced companies to cut spending on plants and equipment. But the composite leading index improved for a second month though the level of the index is still very low. Trade data from Taiwan came in slightly above expectations, but those from Malaysia disappointed. Compared with levels seen a year ago, these are terrible, but in the past few months the data has bottomed out.

Global equities gained 21.2% in the second quarter, the best gain on record. Developed equities rose by 19.7% while emerging equities surged by 33.6%. We expect that emerging markets will continue to outperform as they are set to benefit the most from the resumption in global trade and manufacturing.

While commodities have fallen since mid-June, we are taking the opportunity to increase our overweight based on a near-term favourable outlook for global manufacturing in general and for China and other emerging markets in particular. In case of a global recovery, capacity constraints may develop as many investment projects in the commodity sector have been delayed or even cancelled.

Our neutral allocation to equities remains unchanged. Within equities, we favour emerging markets, are neutral on European equities and underweight in the US and Japan. We funded the increased overweight in commodities by selling inflation-linked bonds. As a result, we are currently underweight in bonds.

Recovery for property securities in sight (source: Fortis Investments)

Though the short term is not without risks, the worst of the sell-off is behind us, according to Fortis Investments’ half-year Global Property Outlook. “Property markets have stabilised somewhat in the first half of 2009 and short selling has declined in markets such as the US and the UK. This is partly due to companies’ moves to redress balance sheet weakness by raising capital or cutting dividends,” explains Shaun Stevens, Fortis Investments’ Investment specialist in property and author of the report.

This recovery in property equities contrasts markedly with the continued deterioration in the wider direct property markets, however. Property values declined and rents fell in key markets in each region in the first quarter of 2009. As a result, weaker rental growth and falling occupancy rates will undoubtedly reduce the earnings potential of landlords in both the listed and private markets.

Indeed, the report underscores that values in direct markets are still falling and conditions in the wider economy will keep downward pressure on rents for the foreseeable future. Consequently, the earnings outlook for the listed property sector remains tepid.

Nevertheless, the basis for a sustainable recovery in global property securities is in sight. Stevens comments: “Signs that the deterioration in economic fundamentals is slowing suggest that the property sector is likely to stabilise in the second half of 2009.”

In particular, the report is positive about UK property equities, where longer lease lengths and higher-quality portfolios are an advantage over continental European property stocks, about which the report is guardedly optimistic that the listed property market will bottom out in the second half of the year. In North America, returns are likely to be muted at best, due to the strong rebound in markets, continued decline in property operating metrics and the dilution caused by leveraging. In Asia, property equities are expected to retrace most of the gains experienced year-to-date as investors primed for an immediate recovery are disappointed by earnings.

Longer term, Stevens assures us that there are compelling reasons for why property should continue to be an important component in the portfolios of strategic investors. “Listed property securities are an asset class in their own right,” he says. “They offer diversification opportunities in a multi-asset portfolio and preserve many of the desirable characteristics of holding direct property over a range of property markets.”

Internaxx Top ten buys and sells –International Investors Activity summary from Internaxx

The Top Ten buys and sells are measured as the total number of trades carried out in each stock by Internaxx clients over the previous month. This report is not a recommendation to buy or sell these stocks.

 Top 10 Buy Top 10 SellTop 10 Buy Top 10 Sell
1Bank of AmericaBank of America
2Arcelor MittalCitigroup
3BarclaysArcelor Mittal
7General ElectricMacy's
9Royal Bank of ScotlandRoyal Bank of Scotland
10FortisBNP Paribas


This document has been prepared solely for informational purposes and does not constitute an offer to buy or sell, or a solicitation of an offer to buy or sell any security or financial instrument, or any investment advice. Prospective investors should conduct such investigations as deemed necessary and should seek their own legal, accounting and tax advice to determine independently of the suitability and consequences of an investment.