Global Investment Trust Outlook is Mixed

11/20/2008 10:36 am EST

Focus: GLOBAL

Andrew McHattie

Editor, Investment Trust Newsletter

Andrew McHattie, editor of Investment Trust newsletter, takes a look at the potential for investment trusts around the world.

Equities have shown some good signs of recovery, but they are still markedly lower than they were a month ago. The level of volatility in stock markets is thankfully abating. The VIX Index, which measures the volatility in US equities, has started to fall from its remarkable highs set in late October. Markets are settling down to some degree—for the moment at least—which might tempt investors to reconsider equities and to hunt for a few trusts able to deliver long-term returns from this lower base. Some observers are suggesting this bear market still has one more down-leg to run yet, but that remains to be seen. Helpfully, the Association of Investment Companies (AIC) has run some analysis and identified what it says are the 20 investment companies with the most consistent performance record in the industry over the last ten years. Interestingly, these are not the ‘boring’ international generalists as you might expect. Far from it. The five most consistent performers over the last decade have been JPMorgan Russian Securities (LSE: JRS), Genesis Emerging Markets (LSE: GSS), Advance Developing Markets (LSE: ADD), Aberdeen New Dawn (LSE: ABD), and Black Rock World Mining (LSE: BRWM).

Amongst emerging markets trusts, the discounts generally look tight—perhaps too tight. In Europe, much the same applies. It is tricky to find any bargains. We would have liked to have found some good value in Asia, but most trusts look fully valued to us in that region.

Japan seems to be back in fashion, as much as any equity market is these days. We have read quite a few bullish opinions recently on the prospects for the Japanese economy, and the Nikkei 225 Index has bounced very strongly from its low in late October. This is in spite of more negative comments from the Bank of Japan (BOJ), which has warned of the possibility that the economy will deteriorate further because of lingering global financial turmoil. The BoJ Governor Masaaki Shirakawa said “for the time being, it’s important to pay attention to the economy’s downside risks, including developments in the US and European financial systems and the effect of global market movements.”

 On the plus side, Japan has cut its already low interest rates, the country is a major beneficiary of lower oil prices, and there are signs of investor confidence returning. The latest monthly report from Nomura Securities points to a much more bullish view from individual investors, with 45% expecting the Nikkei 225 Index to rise by at least 2000 points in the coming three months, from its close on 22nd October at 8674. So far, it is heading the right way. The November report also said the Nomura I-View Index, a diffusion index gauging retail investors’ sentiment based on the monthly survey, climbed 30.8 points from the previous month to 45.6, marking the sharpest rise since the data started to be compiled in April 2006. The latest figure also marked the highest level since September 2007.

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