As I write this I am reminded that 22 years ago I sat at my desk in Sydney watching, in a pre-internet world, the stock market crash of 1987.  It had begun in Hong Kong and was descending upon us; by the end of October 1987 the All Ordinaries index had dropped 45.8% in value. 

Twenty two years on (to the day!) as we reflect on the  Reserve Bank’s decision two weeks ago to increase interest rates by 25 basis points, we can observe that Australia at least, may have  “dodged a bullet” when it comes to the Global Financial Crisis. 

Conscious of the fact that most readers have probably had their fill of media coverage of the “Global Financial Crisis”, we will try to follow a different course. Before we do though, let’s remind ourselves of important observations made: 

We are still in unchartered water and cannot know how the individual economies will respond to the uncertainties that abound.

        · The fiscal and monetary response by a host of nations is unprecedented in scale and scope.  As a result it is partially experimental as this level of united global economic activity, by nearly all of the world’s economies is a phenomenon of our times.

       ·   The de-stocking cycle that caused the world share markets to reach a point that was probably a “bottomed-out position” in the first quarter of 2009, led to unbounded fear that verged on panic.  This was expressed in a collapse in the valuations attributed to shares, commercial paper and property.

       · The recent rally in risk assets, while reassuring, does not necessarily mean the system is healed and that the pattern of the last thirty years is about to resume. The banks are mostly bereft of equity; profits have reached extreme low-levels world-wide, and the trade imbalances that exist between nations need to be redressed.

       · Those countries with strong fiscal balances and high savings are likely to recover the quickest.  Some examples of economies with high current account balances are Malaysia, Singapore, South Korea and Taiwan, and the Scandinavian nations of Sweden, and Norway.  China of course sits at the top of the list with a current account balance of US$364 billion in contrast to the US position of negative US$543 billion!

       · The majority of the Commercial Mortgage Backed Securities (“CMBS”) used as the dominant funding instruments for loans in the US commercial real estate market, will mature in 2011.  So watch that space and its impact on the US economy.

As we write, the conventional view is that the emerging countries of the world are best placed to drag the “world train” out of the shunting yard. This view supports Locumsgroup’s commitment to the emerging economies in our spread of investor’s’ assets across these economic regions.  Our approach still rings true as a sound strategy.

The maxim of: “Hasten slowly” is the order of the day.  Our general phasing in of clients’ investments into the capital markets, a tactic that we have used, has served very well and removes the need to try to pick the “perfect afternoon” to buy into the market.

Today there is a realisation that the world is no longer looking over the edge of an abyss; this realisation has caused markets to rally. 

However research and caution remain the sensible calls of the day.