Market Volatility

Last Thursday’s rise in bond yields cast a cloud over equities, sending major markets down on the day. The yield on the 10-year US government bonds registered its biggest one-day advance in years, above 5%. The implications of a sustained rise in yields could be significant as some argue it could herald a sustained period of higher interest rates, which in turn would raise the cost of financing buy-out deals and eventually dampen the outlook for equity markets. Satisfactory credit conditions have helped fuel the global buy-out boom and higher interest rates could stifle the activity and eventually lead to economic slowdown.

The markets seem to disagree and are recovering, as investors attempt to recoup the losses incurred last week. Low valuations will continue to offer upside potential and it therefore remains difficult to envisage a marked economic downturn in the current economic climate. Markets have proven their resilience to shocks – a drop in global markets in February 2007 following an 8.8% fall in China’s benchmark as well as previous corrections in world markets in May/June 2006, November 2006 and October 2005 - and bounced back. “Corrections provide potential buying opportunities”, says Roger Guy, Manager of the Gartmore Selected Opportunities Fund and the Gartmore SICAV Continental European Fund.

“Movements such as these increase volatility and are driven by short term money hence there is no long term concern. Strong economic data from Europe and the US coupled with prevailing M& A activity, both real and rumoured, reinforces our bullish view of the markets and positive outlook for the Fund”.