Volatility was the defining characteristic of the UK equity market in August as pressure from Wall Street's sub-prime woes compounded weakness in the oil and mining sectors where falling commodity prices weighed on shares. Although equities rallied amid bid speculation surrounding Alliance & Leicester, the news that BNP Paribas was suspending its three hedge funds with exposure to US sub-prime mortgages caused further declines in share prices.The Federal Reserve's decision to cut its discount rate (the rate which it charges to wholesale banks for short term lending) by 50 basis points proved to be the turning point with the benchmark UK index moving higher in the six subsequent trading sessions. Despite the Bank of England refusing to be drawn on an emergency cut in interest rates and news that it had lent £314 million to a UK institution via its standing facility, share prices continued to recover.Within the portfolio, the opportunity provided by the recent market volatility was taken to invest the remaining amount of liquidity within the und. This resulted in the portfolio taking a position in the international hotel group Millennium & Copthorne. During August the group announced interim results which were broadly in line with market expectations. However the group also announced the departure of the Chief Exec. who had only been in the job for approximately 5 months.This was the latest in a rapid succession of departures by senior executives and underlined the fact that control rested firmly with the Chairman and 52% majority shareholder Kwek Leng Beng. This had the effect of diminishing market hopes that a restructuring of the group in order to release value from the substantial free-hold property base was imminent. Despite this operating fundamentals were solid and it was felt that this represented an attractive entry point for the stock.
