Market Review – December 2009

Markets ended 2009 in a very positive vein gaining 6.6% (in Euro terms) in December. The MSCI World index returned 29% for the year as markets rebounded strongly from March onwards.

December’s strong gains were driven by confirmation from key central banks that they will continue to hold very low interest rates and economic recovery supports in place into 2010. Many key economic data releases also confirmed that the global economy is now on a growth cycle again.

However, markets are still vulnerable and this was again seen in the Dubai, Greek and Spanish debt issues. Abu Dhabi provided $10 billion to help Dubai World, the state-owned holding company, avoid defaulting on a $4.1 billion bond payment that roiled global financial markets during the early part of the month. Fitch Ratings cut its rating on Greece’s debt by one step to the third-lowest investment grade and Standard & Poor’s revised Spain’s outlook to negative.

At home we saw the government take the tough steps required to ease international investors’ concerns that the country may struggle to pay its sovereign debts due to the rapid decline in public finances. The public sector pay cuts and a two year €6 billion cost saving program were not received well by the impacted stakeholders on the ground
but international investment markets deemed the measures as positive – unlike the measures taken by Greece some days later.

US banks completed a series of rights issues in order to raise funds to repay TARP loans issued to them at the height of the credit crisis. The banks see the remuneration restrictions placed on them by the TARP agreement as a threat to their competitiveness and were keen to liberate themselves from these.

Also in the US, data suggested that the housing market is beginning to enter recovery mode and also consumer confidence appeared to be improving, albeit from very low levels in previous months. Further improvements in consumer confidence will be dependant on an improving labour market however rather than on the housing market into 2010.

Oil was volatile throughout the month to end the year at $77 per barrel. The price fell early in the month amid reported rising stockpiles and the weakening dollar making the commodity more expensive for non-American buyers. These factors reversed later in the month and the oil price rallied strongly.

Markets in 2009 Return
Ireland +27%
UK +30%
USA +27%
Nasdaq +44%
Europe +30%
Japan +9%
Pacific Basin +55%
World +29%
Bonds +4%

Source – KBC Asset Management & Irish Life Investment Managers.

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