Structured Global Equity Strategies
In recent times, global stock markets have begun to move in sync. What’s noteworthy about the second quarter of 2008 is the variety of ways in which a confluence of issues affected different markets simultaneously.
Global stock market returns for the second quarter, while mixed, were dismal overall — from Shanghai where shares were down 21%, to Paris, down 6%. Left unscathed was commodity-rich Canada where stock prices rose 8.4% and Japan, where the Nikkei staged a second-quarter comeback, up 7.6% following a loss of 18% in the first quarter.
The second quarter opened with hopes that the worst of a U.S.-led credit crunch was over. And growth did hold up better in some places. But another dynamic, inflation, took center stage as credit fears resurfaced. Some economists place the global inflation rate at 5.5%, up from 3.5% at the beginning of the year, thanks to soaring food and energy costs.
In addition to inflation, emerging markets like China and India are wrestling with the aftershocks of huge stock market run-ups in 2007. Europe is struggling with a weakened banking system. The U.S. is reeling from a double crisis: housing and record-high oil prices.
A year ago, when credit-market problems were building in the U.S. and Europe, investors saw Asia as a safe haven. In China, exuberant investors pumped stock-price valuations to a point where some stocks traded at more than 50 times earnings per share. Many of the region’s stocks have fallen under the weight of expectations. In China, down 48% so far this year, higher raw-materials costs and a strengthening currency are squeezing profits.
India took a beating for the quarter, down 14%. Double-digit inflation has spooked foreign institutional investors, who have pulled out more than $6 billion so far this year, according to the Securities and Exchange Board of India.
In Europe, major banks, overseeing billions of dollars of asset write-downs, are tightening lending standards for European companies just as soaring energy and borrowing costs take the wind out of corporate profits. Investors don’t expect Europe’s central bankers, with their hands tied by inflation, to do anything about it. Germany’s DAX index fell 1.8% for the quarter and is off 20.4% for the year. The UK FTSE 100 fell 1.3% for the quarter and is off 12.9% for the year.
Some Latin American markets, buoyed particularly by Brazil’s commodity-led economy, were winners. The MSCI Latin America emerging-markets index was up 10.1%, while the broad MSCI emerging markets index was down 1.6%.
The surge in the cost of raw materials is one reason that fast-growing commodities importers like China and India have taken a beating in recent months. By contrast, markets in Russia and Brazil, both producers/exporters of commodities, are still essentially flat for the year. The best hope for a turnaround would be a downturn in commodities prices, taking pressure off profit margins and inflation, and giving central banks room to maneuver.
Oakwood Conservative
Global Equity
- Balance of value and growth
as well as large, medium and small capitalization stocks
- Suitable for investors
seeking income and long term capital appreciation
Oakwood Moderate
Global Equity
- Has an increased bias towards
value by using multiple asset classes and greater emphasis on smaller
capitalization stocks than the conservative strategy
- Suitable for investors seeking above average returns through long term capital appreciation
Oakwood Aggressive
Global Equity
- Has a higher component
of non-US companies, as well as a greater value tilt and emphasis on
smaller capitalization stocks than the moderate strategy
- Suitable for investors with a higher tolerance for risk seeking higher returns through long term capital appreciation
