Looking ahead for 2009
17.03.2009

For many investors, 2008 was a year to be remembered, no one can deny that in the investment world it was one of the most difficult years in recent history with a cycle of events that even economists could not have thought possible 18 months ago.

We saw some of the biggest names in the banking world fall by the wayside such as the ill-fated Lehman Brothers, whilst other very large institutions such as Northern Rock, RBS, AIG, Fannie Mae and Freddie Mac managed to survive but only because of the prompt action of the governments. So what lies in store for 2009?

With the markets declining as they have been, for the savvy investor, 2009 could actually present a series of unique buying opportunities which possibly may never be repeated in our lifetime. Whilst the markets are low, there are many attractive prospects available; however it can often require the expertise and knowledge of a professional financial advisor to help to identify them

The issues with the world economy, however, have been apparent for some little while now to most of the world’s politicians who have an electorate to face. Many governments, led by the US, have taken measures to stimulate their economies to get things moving again. This provides some hope for the future. President Obama has announced a further plan of public works. These steps will moderate the depth of the slowdown and may bring forward the recovery, but it is unclear when they will kick in, particularly the infrastructure projects, given the lags in the planning and execution of these projects.

Equity Markets

What has certainly captured the headlines over the past year is the rise and fall in the equity markets. However, one feature of the equities markets in 2008 has been that diversification across a range of markets has been a real advantage. For example although, the German DAX and French CAC 40 indices took a real pounding, falling by over 40%, but to an internationally diversified investor, the FTSE World Index fell by only 5.1% which shows the benefits of owning an internationally diversified portfolio.

After a tricky start to 2009, it may be that the FTSE will have an extraordinary year, despite all the economic gloom that some expect. This would not be out of the ordinary as the stock market is a discounting mechanism and tends to anticipate what may happen. The markets often tend to react before the economy and any recovery will be seen through the markets first.

Commodities

Commodities attracted a certain amount of attention in 2008 as global demand growth roared ahead and supply struggled to catch up. But with global growth collapsing demand looks certain to be weak. The one exception to this is gold, where supply remains tight and demand as an inflation hedge may remain good. Arguably, gold therefore is attractive.

This year we will still be pained by reports of economic highs and lows, however there are key ways to investing to help weather the storm, it is helpful to remind ourselves of some of the ‘golden rules’:

1. Invest for the long term. History shows us that investing for the long term will bring positive returns
2. Don’t try to time the market. This seldom works, you can just as easily miss out on the highs and capture the lows, it is all about time in the markets.
3. Diversify your portfolio. Different asset classes perform better under different circumstances, so diversification is vital, for more information on this see our special feature from Appleton Asset Management.
4. Use professional investment management
5. Most importantly talk to your investment professional

During recessions, bad news is accentuated, after all that’s what sells papers! While an immediate recovery may not be on the horizon just yet there will nonetheless be investment opportunities available. Evaluating and selecting the right investments is often beyond the capabilities of the ordinary investor in this environment but it can be made easier with the help of your advisor.