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Protection • Retirement • Investments • Savings • Mortgage life cover

Financial Market Update

Trend spotting Market trends and themes explored.

Covering January 2011

Outrageous Predictions for 2011 Hell or heaven for 2011?

The Jasmine Revolution Turmoil as Tunisia closes their stock market.

2010: Clouds and silver linings Debt and disaster cloud the real world while investors’ gains rocket.

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Trend

spotting Weekly international investment round up to 25th January 2011.

The ‘January effect’ is a well-known term listed in most financial dictionaries as ‘the tendency for stocks to rise in the month of January after end of year and tax related selling has completed’. Several books have been written on the subject including Robert Haugen’s ‘The Incredible January Effect’ and further studies have shown that for the period between 1927 and 2001, January was by far the best performing month of the year. Admittedly, the theory is more closely followed in the United States than this side of the divide due to their tax-conscious investors selling stock at year-end before re-entering the market at the beginning of the New Year. Apart from the taxation aspect, another explanation of the January effect could be caused by portfolio investment managers engaging in some year-end

World Economic Forum starts today in Davos ‘window dressing’ by selling the more risky stock and holding the proceeds in cash and blue chip stocks in order to consolidate gains and to appear more conservative. Also, bonuses for the investment managers are typically based on the rate of performance achieved by the end of the year so in December they tend to lock in profits before re-entering the market and so the cycle turns. So far, the Dow Jones, Nasdaq, S&P 500, Germany’s Dax and France’s Cac 40 appear to among those following this January trend. However, over the last few years the markets would appear to have reacted to this theory with some buying stocks earlier in order to try and take advantage of it. The result has been that markets have started to rise earlier, hence the recent phenomenon called the ‘The Santa Claus Rally’ which predicts the markets to rise in December, something we experienced locally with most of the MSE’s 9.20% 2010 gain arriving over the last few weeks of last year, while half of America’s Dow Jones 11% performance was registered in December. Trend spotting is of course a favourite of the annual economic networking circus, otherwise known as ‘World Economic Forum’, which begins today in the beautiful Swiss town of Davos. Professor Klaus Schwab started the event in 1971 as a platform for

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Weekly market analysis - Week to 25/01/11 Stock markets

25/1/2011

18/01/2011

wks chg

CAC 40 (Paris)

4,033.21

3,975.41

1.45%

Euro STOXX 50

2,979.06

2,910.63

2.35%

Dax (Frankfurt)

7,067.77

7,078.06

-0.15%

11,980.52

11,787.38

1.64%

5,943.85

5,985.70

-0.70%

3,083.88

3,108.29

-0.79%

23,886.84

24,273.95

-1.59%

2,932.64

2,977.65

-1.51%

19,216.16

18,957.95

1.36%

Dow Jones Ind. Avg FTSE 100 FTSE All-Share UK Hang Seng Shanghai CSI 300 Mumbai (BSE) Nasdaq

2,717.55

2,755.30

-1.37%

10,464.42

10,518.98

-0.52%

S&P 500

1,290.84

1,293.24

-0.19%

SMI (Zurich)

6,603.80

6,578.17

0.39%

Nikkei 225

business leaders to discuss key strategies which would then hopefully be taken up by individual governments. It has now mushroomed into a huge economic gathering with over 90 different countries taking part, sending a collective 2,400 representatives including heads of state, leaders of global companies and celebrities campaigning for worthy causes. I am not sure if there is actually a collective noun for a group of optimists, but the word ‘Davos’ must come pretty close. If their pre-meeting rhetoric is to be believed, the world economy is poised for a new ‘super-cycle’ of booming growth, ‘win-win’ situations for trading partners and a general back to business outlook.

Market trends and themes explored

The final conclusion reached by this particularly privileged focus group is very likely to remain the same as previous years, ‘emerging economies set to rise – established economies set to decline (but hopefully not to fall)’. While those in the orchestra may occasionally shuffle seats, their song remains the same.

Article written by Mark Lamb, Head of Life at Citadel Insurance p.l.c. This article does not intend to give investment advice and its contents should not be construed as such. Information in this article has been obtained from various public sources and is given by way of information only. Readers are always encouraged to seek financial advice before making any investment decision.

Citadel Financial Market Update Covering January 2011


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The Jasmine

Revolution Weekly international investment round up to 18th January 2011.

The Tunisian stock market closed on Monday as further troops were deployed on the streets of Tunis following large scale scenes of social unrest which have left tens of protestors dead and their ousted President seeking refuge abroad.

Tunisia’s Tunindex index tumbled 13% last week, its biggest fall in a decade, with leading banking institutions Banque de Tunisie and Attijari Bank nursing heavy losses, declining 4.4% and 3% respectively. Sentiment has also turned against Tunisian government debt with its current Fitch rating of BBB now under close watch. How times have changed for our near-neighbour. Just a couple of years ago while other world stock exchanges crashed their stock market was held aloft as one of the best performers of 2008 and its political regime was then perceived as among the most enlightened throughout the entire Arab world. But with unemployment estimated by the IMF at over 13% coupled with rising food and living costs the effects of the global credit crunch

Turmoil as Tunisia closes their stock market. for Tunisia was simply delayed, not dodged, and acted to shine a light on the inefficiencies of an economy long blighted by its ruling class who are accused of patronage, nepotism and endemic bribery. The Jasmine Revolution, named after the national flower of Tunisia, was triggered following the horrific suicide of a young unemployed graduate whose protest has now been replicated throughout other Arab nations prompting the question, ‘which authoritarian regime will be next?’ Egypt, the most populous Arab country, has seen its benchmark EGX30 index fall by over 3.5% during recent days based on fears that a similar uprising could happen there, particularly as wheat prices now exceed those which sparked the Cairo bread riots in 2008. Oil production in Tunisia is very modest. It consumes as much as it produces, around 91,000 barrels of oil a day, very small when compared with its neighbour Libya’s 1.79 million barrels per day based on figures produced in the CIA Fact Book. However, this has led the country to diversify into other areas, such as agriculture and manufacturing, while its service industry, which includes catering and tourism, makes up over 60% of their economy. But with 5 out of their 6 biggest export partners being EU countries, who have now significantly reduced their Tunisian

Citadel Financial Market Update Covering January 2011

Weekly market analysis - Week to 18/01/11

Stock markets

18/1/2011

11/01/2011

wks chg

CAC 40 (Paris)

3,975.41

3,802.03

4.56%

Euro STOXX 50

2,910.63

2,760.88

5.42%

Dax (Frankfurt)

7,078.06

6,857.06

3.22%

11,787.38

11,647.89

1.20%

5,985.70

5,956.30

0.49%

3,108.29

3,088.45

0.64%

24,273.95

23,527.26

3.17%

2,977.65

3,108.18

-4.20%

18,957.95

19,224.12

-1.38%

Dow Jones Ind. Avg FTSE 100 FTSE All-Share UK Hang Seng Shanghai CSI 300 Mumbai (BSE) Nasdaq

2,755.30

2,712.00

1.60%

10,518.98

10,541.04

-0.21%

S&P 500

1,293.24

1,270.73

1.77%

SMI (Zurich)

6,578.17

6,446.32

2.05%

Nikkei 225

imports, times have turned tough for the majority of the country’s 10.5 million citizens.

Arab world faces market forces stress-test In pursuit of higher returns, investors have increasingly looked towards emerging economies to fuel their portfolios often turning a blind eye to their unsavoury internal practices, while rulers throughout the Arab world have managed to convince the West that their systems are the only alternative to extremism and terrorism however, just like elsewhere, uncompromising market forces will ultimately test these contradictions to the full. With three-quarters of most Arab populations now below the age of 30, demographics may spark the biggest social changes leading to a new sense of openness both at home and with their potential trading partners. Of Arab heritage, but with a strong Mediterranean, Roman and Phoenician history, Tunisia remains a nation of traders whose future success relies upon the freedom for their trade to bloom.

Article written by Mark Lamb, Head of Life at Citadel Insurance p.l.c. This article does not intend to give investment advice and its contents should not be construed as such. Information in this article has been obtained from various public sources and is given by way of information only. Readers are always encouraged to seek financial advice before making any investment decision.

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Outrageous predictions

for 2011 Weekly international investment round up to 11th January 2011.

Although 2011’s first few days may have seen birds inexplicably fall from the sky I do not side with those stating the year ahead will be a complete ‘aflockalypse’. There will certainly be tough challenges ahead, many of which will be dodged rather than tackled, but similar to 2010 this year will offer opportunities which tend to multiply as they are seized. Regular readers will note that over recent years I have attempted to provide some outrageous predictions which may influence investing patterns during the coming year and, amazingly, I seemed to have got more right than wrong. However, as all good financial warnings state, past performance is not necessarily a guide to the future!

Hell or heaven for 2011? To recap, last January I suggested 2010 would be the year China would become the world’s second largest economy and, along with Malta, the UK would exit recession but this would fail to save the UK Government from a closely fought May election. This indeed happened along with Nokia’s predicted acquisition of Motorola. The more outrageous prediction of high unemployment breaking the US Social Security system could arguably be deemed part-true as Obama now attempts to raise his country’s $14.3 trillion legal debit limit or else see it default on its obligations and while it didn’t quite hit the magic $100 dollars per barrel as predicted, Brent oil hit $98.34 last week making $100 now inevitable. However, I was wrong in suggesting the price of gold would actually fall last year. In 2011, I believe Portugal will join Greece and Ireland in applying for a bailout while Germany reluctantly agrees to further support the heightened risk to the euro and other indebted eurozone nations by expanding the 750 billion euro reserve fund. But political change leads the Irish to demand a renegotiation of their bailout terms while more carnage in the banking system sends ripples throughout the whole region. Despite strong strike action I see renewed optimism in the UK markets, growing demand in its mining and financials pushes the FTSE 100 to achieve double digit returns. Stoked by political gridlock and encouraging data, America will see a large movement out of risk-free assets and back

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Weekly market analysis - Week to 11/01/11

Stock markets

11/1/2011

04/01/2011

wks chg

CAC 40 (Paris)

3,802.03

3,876.37

-1.92%

Euro STOXX 50

2,760.88

2,836.54

-2.67%

6,857.06

6,983.88

-1.82%

11,647.89

11,569.71

0.68%

Dax (Frankfurt) Dow Jones Ind. Avg FTSE 100

5,956.30

6,008.92

-0.88%

FTSE All-Share UK

3,088.45

3,107.71

-0.62%

23,527.26

23,387.36

0.60%

3,108.18

3,128.26

-0.64%

19,224.12

20,041.21

-4.08%

2,712.00

2,662.98

1.84%

Hang Seng Shanghai CSI 300 Mumbai (BSE) Nasdaq Nikkei 225

10,541.04

10,292.63

2.41%

S&P 500

1,270.73

1,257.88

1.02%

SMI (Zurich)

6,446.32

6,588.16

-2.15%

into equities fuelling their Dow Jones index to a new record high. In an attempt to stop rampant inflation and higher food prices from sparking social unrest China will put their foot down hard on the economic brake pedal this year, increased Chinese interest rates cause their Yuan to appreciate by at least 2.5% against the dollar and slow global demand by year’s end. Russia, the world’s largest oil producer booms; their RTS index increases by 50% in 2011. Gold eventually loses its decade long lustre as its value experiences a sharp fall while interest rates start to affect the Western world, rewarding savers but hitting borrowers. High commodity prices and food costs further feed rising tensions.

Threats and opportunities lie ahead.

Short-term shocks may unfortunately be delivered in the form of a high-profile assassination or a devastating attack while changing weather patterns increasingly influence where we all look to invest but, hopefully, after having to take a couple of steps backwards we are now ready to take one step forward.

Article written by Mark Lamb, Head of Life at Citadel Insurance p.l.c. This article does not intend to give investment advice and its contents should not be construed as such. Information in this article has been obtained from various public sources and is given by way of information only. Readers are always encouraged to seek financial advice before making any investment decision.

Citadel Financial Market Update Covering January 2011


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2010: Clouds and

silver linings

Weekly international investment round up to 4th January 2011.

While currencies may have faltered, huge quantities of oil and information were leaked and ash clouds gathered, 2010 offered investors some fantastic silver linings.

Locally, the MSE index managed to finish the year up 9.20%, 1.20% higher than 2009’s total, mainly thanks to a year-end ‘Santa Claus Rally’ which averted a flat annual performance. This story was similar to America’s Dow Jones which registered an impressive 11% gain for 2010, half of which came in December. However, the crown for ‘Best Performing Market’ now passes from 2009 winners, Sri Lanka, to Argentina’s Merval index which closed 51.8% higher at 3,523.59 and while many other global stock exchanges can thank their lucky stars for the continued unprecedented spending levels of governments and central banks which served to keep their economies alive, to a large extent Argentina can thank their impressive rally on the death of their President. Following the country’s currency crisis, Nestor Kirchner was first elected in 2003 and was seeking re-election

Debt and disaster cloud the real world while investors’ gains rocket. next year. His administration was rife with scandal and widely accused of corruption and the day he died Argentina’s stock market jumped 8% alone. The vacuum of the last couple of years has led many in the West to happily promote their competitors in the East as the new baton holders of global growth but both leading market indexes of Asia’s two largest economies ended down for the year; China’s CSI dropped 12.5% and Japan’s Nikkei fell 3%. Although the wider Asian markets of India, the Philippines, Hong Kong, Thailand and Indonesia all made strong progress, particularly the Jakarta Composite which closed up by just over 46% in 2010. In Europe, Denmark’s OMXCB led the way with an increase of 35.3% while fellow Scandinavians, Sweden, saw their OMXS All Share jump up by 23.1%. The UK’s FTSE rose for the second consecutive year, this time by 9%, while Germany’s Dax closed at 6914.19, up by over 16%, in contrast to their fellow eurozone team-mates France, Ireland, Spain, and Greece which all experienced falls on their leading market indicators, the last two by 17.40% and 35.6% respectively. The euro government debt crisis, which saw both Greece and Ireland rescued from financial

Citadel Financial Market Update Covering January 2011

Weekly market analysis - Week to 04/01/11 Stock markets

4/1/2011

28/12/2010

wks chg

CAC 40 (Paris)

3,900.86

3,876.37

0.63%

Euro STOXX 50

2,839.43

2,836.54

0.10%

6,989.74

6,983.88

0.08%

11,670.75

11,569.71

0.87%

Dax (Frankfurt) Dow Jones Ind. Avg FTSE 100

5,899.94

6,008.92

-1.81%

FTSE All-Share UK

3,062.85

3,107.71

-1.44%

23,623.67

23,387.36

1.01%

3,189.68

3,128.26

1.96%

20,497.60

20,041.21

2.28%

2,691.52

2,662.98

1.07%

Hang Seng Shanghai CSI 300 Mumbai (BSE) Nasdaq Nikkei 225

10,398.10

10,292.63

1.02%

S&P 500

1,271.89

1,257.88

1.11%

SMI (Zurich)

6,493.88

6,588.16

-1.43%

oblivion, were reflected in the region’s bond performance. Based on data compiled by the European Federation of Financial Analysts and Bloomberg, German government debt was the second best performer after Austria delivering investors a 6.3% total return while Greek fixed interest slumped 20.3%, Irish bonds fell 14.2% and Portuguese debt slipped 8.1%.

Each silver lining now costs an extra 83.8%. In 2010, the cost of things increased. Russia’s drought and Pakistan’s disastrous flood helped send wheat and cotton prices sky-high while other commodity prices rocketed led by gold, which completed a decade of continuous gains hitting a record all time high along the way, finishing the year up 29.7%. Oil added 15%; platinum and palladium which are used in car parts put on 21.5% and 97.3% respectively while copper struck a record high finishing 33.45% higher in 2010. The cost of a ‘silver lining’ rose by 83.8% at year’s end. Next week I will review my 2010 predictions and highlight what may lie ahead in 2011.

Article written by Mark Lamb, Head of Life at Citadel Insurance p.l.c. This article does not intend to give investment advice and its contents should not be construed as such. Information in this article has been obtained from various public sources and is given by way of information only. Readers are always encouraged to seek financial advice before making any investment decision.

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CitadelLifeFinancial Market update covering January 2011  

CitadelLifeFinancial Market update covering January 2011