2009 - Is it all bad news?

Many believe that 2008 will go down in history as the year in which the "unthinkable" happened. Events like the collapse of Lehman Brothers and the nationalisation of Northern Rock, which would have made major headlines on their own, occurred on almost a daily basis.

It was a year in which the true extent of globalisation and its consequences were finally understood. What started as a problem with sub-prime mortgages in the US spread to a worldwide credit crunch, with banks around the world fearful of lending to each other until their exposure to sub-prime losses were known.

This freezing of the credit markets has now trickled down to affect the real economy, with businesses and individuals now finding it more difficult to get loans, as banks attempt to shore up their own balance sheets. This has resulted in an almost frozen residential property market, with many buyers unable to get mortgages and many sellers unwilling to sell at reduced prices. The problems with the housing market have affected people's confidence, as have widespread redundancies, leading to lower consumer spending. This, together with problems in the credit market, has led to well-known businesses, such as Woolworths, going into administration.

Over the past year, concerns have changed. Just a few months ago, inflation was the fear, with soaring commodities prices making everything from petrol for your car to food on the table cost more. Fear of inflation kept central banks from lowering interest rates, even as the slowing economy needed a boost.

Oil reached almost $150 a barrel in 2008 but it is now hovering around the $40 mark. The Bank of England's Monetary Policy Committee (MPC) has slashed rates from 5.5% at the beginning of 2008 to just 0.5% now. The MPC has been joined in cutting rates by other central banks around the world, with the rates of many developed economies now approaching zero.

What now for investors and savers?

While rate cuts are good news for some mortgage-holders-although some banks are not passing on the full extent of the cuts- they are not good for savers, as the interest they earn on their savings is hit. The natural instinct when investments such as Equities and Property are in such flux is to sit on cash, but with interest rates so low, even the current low level of inflation now seen will eat into Growth.

Investors need to look elsewhere to make Money. While it might seem early to start looking at Equities, stock markets tend to recover earlier than the broader economy, as prices are forward looking. So while things might not look good on Main Street, there are reasons for optimism on Wall Street and other stock markets.

Many investment professionals believe that as the States was the first into Recession, it will be the first out and we are therefore looking to US markets to lead the other developed markets of the UK, Europe and Japan to recovery. Optimists also point to the massive government intervention already enacted to stabilise markets and rescue major industries and companies, as well as further stimulus packages that are on the way.

Emerging Markets had been the darlings in 2007 and into 2008, as the growth of countries such as China, India, Brazil and Russia pointed to their independence from developed markets. But the theory of "decoupling" was shot down, as increased domestic consumption was not enough to support companies hitting by falling exports.

The main point for investors to remember about both developed and emerging market equities is that indiscriminate fear has hit the share price of many fundamentally sound companies. Investors willing to think long-term are now able to buy into good companies at a bargain.

In fixed income, scared investors rushed to the perceived safety of government bonds, bringing down yields, but the corporate bond market has been hit by the same fear as equity markets. Bonds now have priced in corporate defaults at a level not seen since the Great Depression, meaning that there are bargains to be had here as well for long-term investors.

The key to finding the 2Bargains"and avoiding the failures is seeking independent, professional advice- so make sure to contact us if you are thinking of taking any actions with your investments, even if you just want reassurance that no action is the right action.

Kevin Moynihan

Wealth Management & Growth Ltd