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March 18, 2008

March Market Review

The credit crunch and interest rates continue to dominate the financial pages as the central banks attempt to stimulate economic growth while trying to temper inflationary risks.
In the UK, the Bank of England maintained the base rate at 5.25% last week on the back of inflation fears, however, there is still a belief by some analysts that there could be another two interest rate cuts this year to assist the economy.
There is a view that UK equities could be well placed for a rebound in spite of data releases which indicate that economic growth slowed at the end of last year. Some analysts are of the opinion that a number of shares have been discounting the likelihood of a full-scale recession, like that experienced by the UK in the early 1990s, and stocks have reportedly already priced in a potential earnings collapse. However, it appears that the corporate reporting season has been relatively positive.
In the US, there is a continuing expectation that the Federal Reserve will maintain its rate cutting policy as it attempts to avert a recession and there has been comment that the benchmark rate could fall to as low as 1.5% this year. The dollar has fallen 4.2% against the euro and 9.2% against the yen, so far this year, on the back of such predictions. The US currency has now equalled an eight-year low of 101.43 yen with a forecast that it could fall to as low as 96 yen by the end of September.
On a more positive note, there has been comment that the US economy will avoid recession and will continue to grow, albeit slowly, with GDP growth predictions for the first and second quarter of 2008 of 0.7% and 1.2% respectively. Aggressive monetary action by the Fed, a pending fiscal package, ongoing efforts to stabilise the housing market and attractive corporate valuations are leading some analysts to believe that stocks will be supported. There is a view that as market uncertainty subsides, strong valuations will help stocks move higher and could result in increasing merger and acquisition activity.
Turning to Japan, there is a view that equity underperformance may not reflect market potential. Japan is home to a plethora of world-class corporations and technology and its currency is felt to be more likely to strengthen than weaken over the long run, which is better for foreign investors.
Corporate reform in Japan is also taking hold, with cross-shareholdings having fallen from around 50% in the 1990s to around 20% in 2006. The fall in loans from the banks has also been significant. In addition, a new corporate law enacted in May 2007 increases the prospects for merger and acquisition activity involving domestic and foreign firms. There is a feeling, therefore, that potential investors may be overlooking a number of positive factors.
Looking at oil, the price of a barrel of crude has risen to a record above USD108 as investors purchase futures as an alternative to investing in struggling financial markets. In addition, China, the second biggest oil-consuming country, increased crude oil imports by 18% last month to meet rising demand. The price of oil has now increased 77% over the last year while the S&P 500 and the Dow Jones indices have dropped.
The information set out herein has been obtained from various public sources and is published by way of information only. The Spectrum IFA Group can accept no liability of any sort in relation there to and readers should obtain their own verification of any statement before making any decision which may have any financial or other impact.
Neither the information nor the opinions herein constitute, or are they to be construed as, an offer or a solicitation of an offer to buy or sell investments.
This information is only provided as a guide and, if you need assistance in this area you are strongly advised to seek the help of a specialist in this field as each individual case is different.

If you have a question, want to arrange for a free financial review or just want further information I can be contacted on +33 (0)325461631, via my website www.financialexpat.com or via e-mail steven.grover@spectrum-ifa.com  
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