Market Summary for February 2010
Stock markets remained volatile in February 2010 as Greek debt problems continue to weigh on investor sentiments. However, since European leaders pledged to provide assistance to Greece post 11 February 2010 EU Summit, markets seems to have stabilised, with most markets seeing gains towards the end of February 2010. The conservative portfolio emerged strongest among the 5 portfolios, returning 0.18% while the rest came in flat but remained positive month-on-month (Table 1).
Euro continued to weaken amidst debt concerns in Euro area
Worries of Greek debt problems flowing to the rest of the PIIGS (Portugal, Italy, Ireland, Greece and Spain) economies saw the euro further slipping against the USD in February 2010. DJ Stoxx 600 declined by 2.5% (in SGD terms, as of 26 February 2010), the second worst performing market which we cover. However, yield spreads of PIIGS sovereign debts against German bunds (highly regarded as Europe risk free equivalent) has been stabilising since European leaders pledged to provide assistance to Greece if required. While euro continues its fall against US dollar, we believe the weaker euro will benefit Europe, which is depending largely on exports to pull the region out of recession as consumer spending continues to remain flat.
Central banks begin taking steps in withdrawing liquidity
While central banks have refrained from increasing interest rates, they have been taking steps to withdraw liquidity. India raised its cash reserve requirement ratio by 25 bps on the last day of January while Federal Reserve raised the discount window lending rate by 25 bps to 0.75%. While the media has widely reported this as a rate “hike”, investors should note that the policy rate (Fed Funds Target Rate) has been left unchanged, and the Fed Chairman has also reiterated its policy of keeping rates low for the foreseeable future. A host of liquidity support measures have also expired in the US in the month of February.
China hiked banks’ RRR again before CNY
After their surprise hike in reserve requirement ratio (RRR) for banks in January 2010, China shrewdly timed another 50 bps increase in RRR again just before the week long Chinese New Year holidays where capital markets were closed. With the new hike, the present RRR is only 1% below previous peak of 17.5%. We believe that the Chinese government will hike the RRR one more time before hiking the benchmark interest rate.
Global equities gained while US Treasuries fell slightly
While the first increase in reserve ratio China took dealt a hard blow to global equity markets, past month reaction from equity markets to subsequent tightening measures was milder. Markets remained volatile in February 2010 but most managed to reverse earlier losses that flowed over from January 2010. Global equities rose 0.79%. US Treasuries as represented by iBoxx USD Treasuries Total Return Index fell 0.62%. Yields on 2 year and 10 year UST increased marginally by 1 bps and 10 bps respectively. (All data refers to month-to-date data as at 23 Feb 10 in USD terms)
Maintain overweight in equities
The recent weakness in equities presented fresh opportunities for investors to accumulate. With the fall in equity prices, valuations appear cheaper. With fundamentals remaining intact and the risk of a ballooning Europe debts crisis faltering, we believe equities will pick up once again when investors return their focus to companies earnings. We therefore maintain our overweight position in equities positioning for all five recommended portfolios.
| Table 1: Portfolio Performance |
| 26-Feb-10 |
0.18% |
0.09% |
0.00% |
0.04% |
0.08% |
| 28-Jan-10 |
-0.20% |
-1.44% |
-2.73% |
-4.25% |
-5.80% |
| 28-Dec-09 |
1.66% |
2.4% |
3.1% |
2.6% |
3.2% |
| 30-Nov-09 |
0.76% |
0.7% |
0.6% |
1.9% |
2.2% |
| 28-Oct-09 |
0.02% |
-0.3% |
-0.5% |
-1.1% |
-1.2% |
| 30-Sep-09 |
1.2% |
1.6% |
2.1% |
1.9% |
2.5% |
| Source: iFAST Compilation |
Conservative portfolio best performer in Feb 10
With markets remaining volatile, fixed-income continues to shine as the Conservative portfolio emerged stronger again in February 2010. All bond funds in FSM portfolios gained while equities funds came in mixed. Conservative portfolio returned 0.18% in February 2010 while the rest of the portfolios came in flat. The portfolio was held up by gains in Asian bonds and global emerging market debts which rose 0.58% and 0.49% respectively, but was dragged down by global emerging market equities which fell by 0.37%.
Asian bonds and developed market equities best performer in Feb 10
Legg Mason Asian Bonds Trust came in as the best performing bond fund, returning 0.58% in February 2010. Meanwhile, developed markets outperformed as FLF Opportunities USA USD and DBS Japan Growth gained 1.51% and 1.17% respectively. However, the top performing funds among the 5 portfolios came from the supplementary portion of Moderately Aggressive and Aggressive portfolio. Henderson Global Technology gained 1.54% while DWS China Eqty Fund Cl A SGD gained 2.52%, offsetting losses from other regions, pulling up the performance of the more aggressive portfolios. For more details of the funds performance with respect to individual portfolios, please refer to the recommended portfolios webpage or their monthly factsheets (direct links for respective factsheet provided below).
Start with $20,000
Investors would be able to follow the target allocation in Table 2 with a S$20,000 starting capital. The research team at Fundsupermart.com will be providing the portfolio review on a monthly basis at the start of the month.
Latest Portfolio factsheets
The portfolios' factsheets are updated on a monthly basis and links for the most up-to-date factsheets are as provided below:
- Conservative Portfolio
- Moderately Conservative Portfolio
- Balanced Portfolio
- Moderately Aggressive Portfolio
- Aggressive Portfolio
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