United Kingdom - quarter 2 commentary from AEGON Asset Management
Although headline news at the start of the quarter was poor - high oil prices, rising food prices, weaker housing markets, rights issues and write offs, the quarter started strongly. With the Federal Reserve and the Bank of England moving to improve liquidity in the financial system, cuts in UK interest rates and banks raising fresh equity there was some hope in April that conditions would stabilise. However, in the course of the quarter the market began a decline that continued almost without interruption during the month of June.
Half way through the quarter, the steady flow of poor UK news (inflation, house prices, mortgage approvals, rights issues), hit domestically orientated stocks hard. Higher oil prices buoyed energy stocks, but concerns grew that the threat of higher inflation and lower growth may threaten the outlook for emerging markets, notably China: representing a potentially major change in assumptions underlying many investment strategies.
Enthusiasm for the oil & gas sector continues in the market with related industries also performing strongly, oil equipment was the only sector to deliver positive returns in June. The continuing positive performance in these sectors reflects the strength of commodities and the current trend to own less economically sensitive stocks. Other relative winners included mining, pharmaceuticals, electricity and in May, software and computer services. The housing sector spiralled down further in April by 20-30%, spooked by Persimmon’s gloomy AGM statement, and weak mortgage data. Other notable losers included life insurance, household goods, media, general retail and banks.
