Following the extraordinary events in the fi nancial sector and a wave of poor economic data, it is now likely that Western economies are in recession. Falling property values, sliding profi tability and rising unemployment will probably lead to further write downs for the banking sector. We expect to see further measures taken by governments to shore up banks following on from the UK lead. What we have witnessed in the third quarter is unprecedented in our lifetime.The good news is that the threat of infl ation is receding. The oil price has plummeted since its July peak of $147. Central banks are now likely to cut interest rates as part of their efforts to stave off the threat of a deep recession. We believe that UK interest rates could reach 3.5% in 12 months time.The market climate has been one of fear and panic. While no one can say when confi dence will return, there are plenty of indicators that encourage us to believe that right now is a very bad time to disinvest. Bear markets typically last about 18 months, so this one is quite long in the tooth and has already cut deep into equity market valuations.Amid this painful process of de-leveraging and bail-out of the fi nancial system, we continue to review the areas to which the Fund is exposed. We maintain our exposure to the dollar in the belief that the US is likely to be the fi rst to emerge from this crisis, even if that could take some time.
321.93p
