Financial Markets Commentary: July 2010

Friday, 20 August 2010, 1:37 pm
Press Release: Tower

TOWER Investments – Media Release

For immediate release

20 August 2010

TOWER Investments Monthly Financial Markets Commentary: July 2010

Bulls return to financial markets in July but bears still sceptical

Default KiwiSaver provider TOWER Investments says financial markets demonstrated strongly conflicting trends over the month of July that betrayed profound uncertainty over economic outlook.

“A profound difference of opinion on global economic outlook emerged over July and showed up as opposing trends in financial markets,” said Sam Stubbs, Chief Executive Officer of TOWER Investments.

“Bulls were prepared to pay more for risky assets like shares and commodities, while bears kept paying increasingly higher prices for defensive assets like bonds.”

“The optimistic camp chose to accentuate the positive in news and economic statistics emerging over July, especially concerning strong US corporate results reported and the apparently benign outcome of the ‘stress tests’ for solvency performed by European Union authorities on banks they supervise.”

“This optimism showed up as a return of risk appetite to the markets and a sharp rebound in global equities and commodities.”

“Underlying this rebound is the view that the economic slowdown apparently under way will prove to be a merely temporary deceleration within a sustainable global growth trend that is gathering strength.”

“The pessimistic camp continued to believe that a double dip recession is the actual destination of slowing economic recovery and that deflation is quite possibly on the way in for the US economy and perhaps the continental European economy besides.”

“The pessimists’ risk-averse views were expressed in driving the ongoing global rally in advanced economy sovereign bonds, with high quality corporate bonds and asset-backed securities joining the charge over July.”

“These two utterly opposed views of where the global economy is ultimately headed – up or down - cannot be sustained side-by-side indefinitely, but only economic evidence yet to emerge will prove whether either the bulls or the bears are right.”

“This tug-of-war will likely be resolved one way or the other over coming months, with optimists predicting that risky assets have further to rise, and pessimists forecasting that defensive investment in bonds will be the winning strategy.”

“In times of such uncertainty, the merits of investors hedging their bets by holding well-diversified investment portfolios with appropriate allocations to bonds and shares are strongly confirmed.”

ENDS

[Attached: Monthly_asset_class_returns_July_2010.xlsx]

Further information

Top Three Performance Rankings

Results selected from the basket of market indices used by TOWER Investments as benchmarks for performance of its managed funds.

For the month of July, 2010, the top three index basket performers in descending order were commodities (+6.8%, US dollars), global equities (+5.8%, local currencies), and New Zealand equities (+2.1%).

On a three month basis to the end of July, 2010, the top three index basket performers in descending order were New Zealand bonds (+3.6%), global bonds (+3.2%, New Zealand dollar hedged), and New Zealand cash (+0.7%).

On a year-to-date basis to the end of July, 2010, the top three index basket performers in descending order were global equities (+10.4%, local currencies), global bonds (+9.8%, New Zealand dollar hedged ) and New Zealand bonds (+7.9%).

Please see accompanying spreadsheet graph for index performance comparisons.

Index Basket

The basket of market indices tracked as benchmarks for TOWER’s managed funds includes:

New Zealand cash: ANZ/NZX 90 Day Bank Bill Index (NZD)

New Zealand bonds: ANZ/NZX Government Stock Index (NZD)

New Zealand property: Mercer Property Index (NZD)

New Zealand equities: NZX50 Index (NZD)

Global bonds: Barclays Capital Global Aggregate Index (NZD Hedged)

Global equities: MSCI World Index (Local Currencies)

Commodities: Dow Jones-UBS Commodity Index Total Return Index (USD)

Hedge funds: HFRX Global Hedge Fund Index (USD)

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