Equities in 2007 were like the curate’s egg – good in parts

World stock markets were like the curate’s egg in 2007: good in some parts but distinctly bad in others, says Trevor Greetham, manager of the Fidelity Multi-Asset Strategic Fund (MASF).

Mining stocks were the top performers, delivering average gains of 56% in dollar terms. Investors in banks shouldered the greatest losses: their shares fell by an average of 9% during the year.

The UK stock market largely reflected the global trend: quoted mining companies showed gains of 56%, while bank stocks fell by 16%. However, the large weighting of financials in the index meant that the sector’s poor performance had a disproportionate impact on the market’s overall returns.

Banks were not the worst performing stocks in the UK, however. That dubious honour went to the listed property sector, where companies lost on average a third of their value in dollar terms. General retailers also suffered, losing 22% of their value as consumers reined in their spending.

Trevor Greetham says: “While equities did deliver positive returns in 2007 – they finished the year up 11% - the stock market indices were increasingly volatile and sector performance was very mixed. Strong returns from companies in basic materials and oils were offset by corrections in financial and consumer stock prices.

“The best gains were in global equity sectors linked to the commodities markets. As an asset class, commodities outperformed stocks – the DJ AIG index returned 16% in dollar terms, just ahead of cash which returned 14% (as measured by JP Morgan’s global 3 month money index). Bonds came in at 13%, equities at 11%. Global property was the big loser, falling 1%. The numbers looks respectable until you factor in the 9% slide in the dollar index. Expressed in almost any other currency, returns were poor.

“This pattern of performance with commodities at the top of the pile and property at the bottom is consistent with a mild dose of stagflation – the combination of a pick up in inflation and slowing economic growth – that hit the developed world in the second half of 2007. I expect more of the same this year so my multi-asset funds are overweight commodities and cash relative to equities and property. Equity exposure is tilted away from the global financial and consumer sectors towards the markets in non-Japan Asia.”