Reuters - Finishing out a ferocious quarter

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Finishing out a ferocious quarter

Sunday, Mar 23, 2008 3:16PM UTC

By Jeremy Gaunt, European Investment Correspondent

LONDON (Reuters) - This is the last full week of the first quarter, when markets are normally driven at least in part by window dressing as professional investors seek to make their quarterly or annual performance look good to clients.

Some window dressing, indeed, appeared to have started last week as investors improved the look of their portfolios by booking profits on assets such as gold that have been notably successful over the first three months of the year.

Hedge funds, too, will be keen to lock in profits they have made -- a strategy that may add to pressures on various markets.

But with a quarter as brutal at the latest one has been, traditional stock investors have little scope for beautification efforts.

"I would sense for the moment that everyone knows this quarter has been dreadful and we are just grateful that it is over," said Neil Dwane, chief investment officer in Europe for investors RCM.

He said some funds might sell a few losing shares that they do not want to hold when their portfolios are studied, but he questioned whether funds holding shares that were down 20 or 30 percent would bother dumping them now.

"I don't think window dressing will be very important," he said.

Not that there will be much to dress anyway.

With a week to go, this has so far been the worst quarter for global stocks in general and the U.S. S&P 500 <.SPX> and pan-European FTSEurofirst 300 <.FTEU3> in particular since the third quarter of 2002, after the internet bubble burst.

For Japan's Nikkei average <.N225> it is the worst since the third quarter of 2001.

Moreover, global stock losses in this quarter and part of the last have been enough combined to wipe out all the gains of 2007 and some of 2006's as well, based on MSCI's benchmark world stock index <.MIWD00000PUS>.

LONG ROAD AHEAD

There is little expectation that any of this is likely to be eased either this week or well into the next quarter, despite efforts by the Federal Reserve and others to pump money into a stalling and liquidity-starved economy.

The mood at the Reuters Fund Summit in Luxembourg last week, where executives met to discuss the current climate for professional investors, was not panicky, but it was decidedly gloomy. (For reports from the summit, see http://www.reuters.com/finance/summit/Funds08)

Expectations were that the current crisis -- a combination of dwindling confidence, frozen lending and U.S.-led economic worries -- could go on longer than first imagined.

It was also seen as carrying with it real dangers that have not been seen for decades, even as far back as the Great Depression triggered by the 1929 Wall Street crash.

"The consensus in the market is that some time in the summer will be the right time to buy ... I would prefer to be more cautious. This isn't going to be a short-lived economic downturn," Mark Kary, chief executive of hedge fund Polar Capital Partners told Reuters at the summit.

"It will be something more significant ... Will it be like 1929? I don't think we know," he said.

Such uncertainty, indeed, is one of the main drivers of current markets, with the focus particularly on the losses from subprime mortgages and related investments by large banks.

There are fears that the distress at Bear Stearns <BSC.N>, with its Fed-supported bailout and fire sale, is only the tip of an iceberg. Many investors want to hear more from banks about how big their losses are, not totally trusting what they have heard so far.

U.S. housing is the key, according to RCM's Dwane, with a stabilization needed before markets can regain equilibrium.

So part of this week's focus will be on U.S. data on existing home sales on Monday and new home sales on Wednesday. House price data on Tuesday will also be a key gauge for consumer confidence, data on which is released the same day.

COMMODITY RETREAT?

One new wrinkle for investors this week, meanwhile, may come from commodity markets, where a sell off began last week after months of record rises.

Gold and other precious metals, oil and base metals such as copper, came well off recent record highs. Spot gold, for example, ended the week some 10 percent lower at around $920 an ounce compared with a record high of $1,030.80 at the beginning.

While some of this is profit taking -- window dressing -- as the quarter ends, risk aversion may be creeping in.

"The commodity market has grown extremely volatile, and daily fluctuations of several percentage points are now commonplace," Cummerbund Corporate and Markets analyst Eugene Weinberg said in a note.

"We do not expect all this to mean the end of the commodity high, but some more cautious investors will no doubt be wondering whether the commodity sector really is such a safe haven after all," it said.

Yet more pressure on battered investors struggling through a quarter many would like to forget.

(Editing by Ruth Pitchfork)