fidelity funds performance - Chartbook.fid-intl.com

MARKET UPDATEOVERVIEW OF THE FOURTH QUARTER OF 2010REVIEW AND OUTLOOK FOR THE MAJOR MARKETSGlobal equities advanced over the October–December quarter,supported by further quantitative easing by major central banks andoptimism that the global economy is picking up steam. In November,markets were subdued amid weak global cues due to sovereign debtconcerns in peripheral eurozone economies, monetary policy tighteningin China and geopolitical tensions in Korea. However, some of thesefears abated in December owing to positive macroeconomic data.Materials and energy stocks outperformed other sectors as oil andcommodity prices continued to rise, further enhancing investorsentiment. Meanwhile, defensive sectors, notably utilities, lagged. Atthe regional level, Japanese stocks gained the most, followed byequities in the US, Pacific ex Japan, emerging markets and the UK.Europe ex UK equities lagged other regions.depressed housing market, but a rising wealth effect has ensured thathigh-end consumers face a more positive outlook.EUROPEEuropean equities rose in the fourth quarter of 2010, despite worriesabout the debt crisis in Ireland and its spread to other peripheraleconomies, including Portugal and Spain. In order to try to quell thecontagion, the European Union handed Ireland an ?85 billion aidpackage. Additionally, the ECB delayed the withdrawal of its emergencyliquidity measures and bought government bonds in Portugal, Irelandand Greece. Equities were also supported by encouraging earningsresults and economic data. At the sector level, materials names trackedrising commodities prices and other cyclical segments, such asindustrials and consumer discretionary, also performed well. Conversely,investors sold shares in financials, though the sector recovered partiallytowards the end of the quarter.Economic data releases over the quarter improved, indicating thepossibility of a more rapid global economic expansion. In the US andthe UK, the manufacturing and retail sectors showed an upbeat trend.Germany’s Ifo index reached a record high (since Germany’s unification)in December. The JPMorgan Global Manufacturing PurchasingManagers’ Index, a measure of the overall health of world economy,rose for the third consecutive month in December. The US FederalReserve’s (Fed) second round of quantitative easing in November,Japan’s ¥5 trillion stimulus package and the European Central Bank’s(ECB) decision to continue its emergency liquidity measures were allsupportive of growth. However, the possible spill over from theEuropean sovereign debt crisis and likely inflationary pressures couldderail the recovery. Already, China has started tightening its policies inresponse to rising prices.Over the quarter, the US dollar weakened against major currencies.UNITED STATESUS equities witnessed another quarter of broad-based gains. A newround of quantitative easing by the Fed, the extension of Bush-era taxbreaks and unemployment benefits offered by the Obamaadministration, combined with business-friendly Republican gains in themid-term elections buoyed investor sentiment and helped offsetconcerns about the fiscal health of peripheral Europe. Investors focusedon improving economic data, which reduced the likelihood of aneconomic “double dip,” and continued strength in corporate earnings.Merger & acquisition activity by cash-rich businesses also fuelled gains.At a sector level, cyclicals outperformed defensives, with energy andmaterial stocks leading because of higher resource prices. Meanwhile,consecutive improvements in retail sales boosted consumerdiscretionary shares.The fifth consecutive monthly increase in personal consumptionexpenditures in November bodes well for the recovery process.Consumer spending accounts for a significant portion of the country’stotal economic output, but has been subdued until recently. Householdsfacing declining net worth, high unemployment and constrainedincomes were forced to deleverage and increase their savings behaviourduring the credit crisis. However, recent economic growth and stockmarket gains have provided consumers with the means to beginspending once again. The newly announced fiscal stimulus packageshould support this uptrend. Interestingly, low-end consumers continueto face a challenging environment, given the prevailing joblessness andEurozone’s economic growth slowed in the third quarter; GDPexpanded at 0.4% against 1.0% in the previous three months. Theperipheral economies lagged Germany, as budget cuts aimed atreducing record deficits undermined their recovery. However, the ECBraised its GDP growth forecasts for 2010. In the eurozone, industrialactivity improved and key sentiment indicators moved up over thefourth quarter, although the unemployment rate remained high. Inresponse to the sovereign debt crisis, the ECB kept interest rates onhold, while the annual inflation rate in the region rose to 2.2% inDecember, higher than the ECB’s medium-term target for the first timein two years.UNITED KINGDOMUK equities recorded positive returns in the fourth quarter. Concernsabout the economic recovery eased over the period as the Fedannounced a second round of quantitative easing, while the ECBindicated that it is prepared to extend stimulus measures. Investors alsowelcomed plans for the large-scale reduction in UK governmentspending, announced in October, which aims to cut the country’sspiralling public deficit. Improving trends in corporate earnings and bidspeculation further supported stock prices. However, there were majorconcerns around the re-emergence of the European sovereign debtproblem, as Ireland became the second eurozone country to require abailout after Greece. Tensions between North and South Korea, andworries that China’s effort to contain inflation could curb consumption,also dampened investor sentiment to an extent.There was mixed news on the economic front. According to preliminarydata from the Office for National Statistics (ONS), the GDP showed asurprisingly strong increase of 0.8% in the third quarter, suggesting thatthe UK economy is more resilient than many had feared. However, thefigure was later revised marginally downwards to 0.7%, owing to weakergrowth in the construction, business services and manufacturing sectors.Meanwhile, a separate ONS report revealed that the annual rate ofinflation climbed to a six-month high of 3.3% in November from 3.2% inOctober, mainly due to an increase in prices of food, clothing andfurniture. The latest surveys by the Confederation of British Industryshowed upbeat trends in the manufacturing and retail sectors, but theoutlook for the housing market is still uncertain and high unemploymentlevels remain a cause for concern. The Bank of England’s policymakerskept interest rates on hold at 0.5% over the quarter.2