Semi-Annual Report and Accounts - chartbook.fid-intl.com

Fidelity
Funds
20
15
10
5
0
-5
-10
-15
-20
-25
Globally, earnings downgrades continued to surpass upgrades, but the net earnings upgrades ratio improved recently in the US, Asia Pacific ex-Japan
and emerging markets. Companies in Europe and Japan continue to show weak trends, indicating that the downgrades have not yet bottomed.
However, the rate of downgrades appears to be slowing and much of the bad news already seems to be priced in. Earnings per share growth forecasts
for 2012 have been reduced in most regions, whilst those for 2013 remain relatively healthy, but could see some deterioration. Markets have been
strong this year and any improvement in earnings and revenues can be a catalyst for a further rerating by investors. Such a focus on fundamentals is
beneficial for genuine stock pickers, but the market environment remains volatile and risk related trades continue to influence sentiment.
Bond markets
Investment Manager’s Report*
Nov 09
Dec 09
Jan 10
Feb 10
Mar 10
Apr 10
May 10
Jun 10
Jul 10
Aug 10
Sep 10
Oct 10
Nov 10
Dec 10
Jan 11
Feb 11
Mar 11
Apr 11
May 11
Jun 11
Jul 11
Aug 11
Sep 11
Oct 11
Nov 11
Dec 11
Jan 12
Feb 12
Mar 12
Apr 12
May 12
Jun 12
Jul 12
Aug 12
Sep 12
Oct 12
US Europe ex-UK UK Asia Pacific ex-Japan Japan Emerging Market
Source: Datastream, Net earnings upgrades ratio (three month moving average) 31.10.2012
Most traditional fixed income asset classes advanced and recorded positive absolute returns over the period. Investors continued to search for higher
yielding risk assets, whilst also looking for “safer haven” developed market government debt. Overall, global high yield and investment grade
corporate bonds outperformed developed market government bonds as risk spreads, in aggregate, came down. Market sentiment was buoyed by
actions taken by the ECB and the Fed’s announcement of a third round of QE. Elsewhere, emerging market debt recorded strong returns. These bonds
provided a good source of additional yield over developed market government debt, backed by stronger economic fundamentals and capital flows.
Basis Points
140
120
100
80
60
40
20
0
Dec 08
May 09
Sep 09
Jan 10
Source: Datastream 31.10.2012
Net earnings upgrade ratio improves in the US
European interbank liquidity conditions improve
May 10
Sep 10
Jan 11
May 11
3-Month Euribor-OIS spread
Sep 11
Jan 12
Jun 12
Oct 12
Meanwhile, the European banks’ reluctance to lend to one another further declined over the period. The 3-month Euribor OIS spread, the difference
between the Euro interbank offered rate and overnight indexed swaps, declined to its lowest level in the post-financial crisis period. The chart shows
this spread jumped distinctly in October 2008 when Lehman Brothers’ collapsed. Subsequent crisis response actions brought the spread down in the
following months, but it remained elevated compared to pre-crisis levels. The more recent eurozone sovereign debt crisis caused renewed problems
for Europeans banks, resulting in another sharp spike in the spread in late 2011. Once again however, restorative policy actions, in particular the ECB’s
refinancing operations in December 2011 and February 2012, helped to bring spreads down. The main driver of further improvement was the ECB’s
announcement of its preparedness to undertake unlimited sovereign bond purchases if necessary.
5