The effects of the Credit Crunch, with the shortage of liquidity, particularly in the bank sector, has resulted in a more significant economic downturn than would normally occur when Central Banks tighten credit to reduce inflationary pressures. Effectively, the interbank lending rates are around 75 basis points above base rates, which has made it far more difficult for monetary policy to be applied.In addition, commodity prices had moved to all time highs, which increased the inflationary effect, predominantly, in the Western economies. The double whammy has led to uncertainty, together with volatility in the major world stock markets, and despite earnings returns, yields, together with cash to book values now being at historically undervalued positions, especially when compared to bonds, it is likely that the down trend will continue as recessionary fears dominate sentiment.The fund has built up a strong liquidity position, and the manager continues to reallocate asset selection, especially to America and Japan where earnings growth can be maintained, while taking profits from areas which, traditionally, perform well towards the top of the cycle, such as, commodities and emerging markets.
528.46p
