January 2009 was the fifth successive negative month for stock markets, with the MSCI World Index falling by 1%. The month began with a short-lived New Year climb in markets but, as the month progressed, further banking system fears and poorer than forecast corporate reports saw the initial gains recede.

Global macro news was again disappointing, but largely formalising what is already known – US house prices are down over 25% on average from their peak, the UK is in recession, and Europe is still showing very weak economic data.

With the worsening economic environment to the fore, interest rates were cut further in the UK and Euroland, with rates now at 1.5% and 2% respectively. 

On the domestic front, Anglo Irish Bank was fully nationalised. The initial ‘part nationalisation’ of the bank through a €1.5 billion capital injection in late 2008 emerged as being insufficient to save the bank, which is heavily exposed to loans for development land and property in Ireland and the UK. 

With the massive falls in the value of Irish banking shares over the last two years, the banking sector now makes up a mere 7% of the ISEQ Index. CRH and Ryanair combined now make up 49% of the overall ISEQ index. During the month, Ryanair’s bid for Aer Lingus was rejected again. 

The new US President’s inauguration speech reiterated the economic challenges that lie ahead, as well as the stimulus packages that will be put in place to help combat the ailing superpower. He also further declared his intention to tackle the energy problem in the US by increasing energy production from alternative sources and reducing the US’s dependency on external oil and gas. 

US policy makers are also looking at the possibility for setting up a “bad bank” structure in order to remove toxic assets from US banks’ balance sheets and thereby freeing up lenders to start lending to companies and consumers again. 

Source – KBC Asset Management