Global emerging market equities continued to show a clean pair of heels to other risky assets when it added 17.1% to bring the year to date total to just shy of 38%.  Compared to global equities (up 6.8% for the year to date in US Dollar terms), US high yield bonds (+27.2%) and commodities (+13.7%) it has provided investors in these markets with some respite following the losses in 2008.  It is interesting to note that emerging markets reached its bottom in October last year, whereas developed equities only bottomed early in March 2009.

“Sell in May and go away” is an old adage that still needs to be proved wrong in 2009. Most risky assets performed well during the month, whilst traditional low risk assets in the form of government bonds sold off. Some market commentators use the 200 day moving average as a significant indicator that signals either longer term bull or bear trend. The MSCI World Index broke through its 200 day moving average in the middle of April, and has remained above that level since. Global equity markets were a lot more nervous throughout most of April and May, most probably on the back of the publication of worse than expected economic data. The World Bank revised its March 2009 forecast in stating that the recession will be deeper than previously thought and this has added to uncertainty in capital markets in June.

In May global developed market equities added 9.1%, taking it into positive territory for the year (+6.8%). Regional equities also performed well, with the S&P500 (+5.5%), FTSE All Share (+4.2%) and Japanese Topix (+7.2%) all delivering solid returns.

Government bond yields have increased steadily throughout the month causing US Treasuries (-1.1%), UK Gilts ( 1.1%), Japanese government bonds (-0.3%) and government bonds across the Eurozone (-1.3%) to lose some value for its investors. With yields increasing global government bonds are moving into fair value territory; more specifically the US 10 year treasury starts looking attractive with a yield around 4%.

Investment grade corporate bonds and high yield bonds continued to do well during May, with US High Yield bonds adding 6.7% for the month. For the year to date high yield bonds in the US and Eurozone have delivered exceptional returns; up 27.2% in the States and 33.6% in Europe. High yield bonds typically rally after defaults have peaked and we expect this to happen towards the end of 2009 or early into 2010. The current rally is therefore probably attributable to the large sell off of these bonds that we saw in 2008, and we may see a moderation of returns towards the second half of the year. Investment grade bonds still offer good value and with a spread of around 330 basis points over treasuries (in the US) it should be considered as a very suitable candidate for balanced portfolios.

Global convertible bonds benefited from the rally in equity markets as well as the solid performance of corporate bonds and as a consequence added 5.8% for the month. This asset class has now returned close to 16% for the year and in our views offers further value to investors, with the obvious downside protection in the form of a bond floor.

In line with our view that the global economic recovery could be lead by the Asian market, property securities in this region continued its move into positive territory delivering 15.6% for the month of May. In 2009 Asian property has now returned 18.6%, outpacing the US (-10.3%), UK (-16.1%) and Europe (7.0%). Following global property’s recent recovery after its March lows we expect performance to be slightly more subdued if markets enter rough waters again. Opportunities in the property market will probably present itself in the form of direct property investments of physical residential and commercial property holdings, perhaps even in the form of syndication. For the investor willing to accept liquidity constraints the purchase of the right property from a distressed seller may prove quite profitable in the next couple of years.

The US Dollar seemed to once again follow its more recent inverse relationship with risky assets – when markets do well it depreciates against its major counterparts. The greenback lost value against the euro (-6.8%), Sterling
(-8.8%) and the Yen (-3.1%).

Commodities in May made up for a lot of ground lost in the second half of last year, with oil (+22.2%) leading the charge of the “real assets”. Gold is now up over 13% for the year, justifying its inclusion in many balanced portfolios early in the year. Its role as insurance during times of risk aversion may well be tested in the months to come…

Source: RMB Asset Management / Lipper Hindsight / Bloomberg April 2009.

Important Notes

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We caution that the value of investments in discretionary accounts, and the income derived, may fluctuate and it is possible that an investor may incur losses, including a loss of the principal invested.  Past performance is not generally indicative of future performance. Investors whose reference currency differs from that in which the underlying assets are invested may be subject to exchange rate movements that alter the value of their investments.

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Wealth Management Group 2009