Commenting on the recent announcement by the UK government and the co-ordinated move to cut interest rates, Edward Bonham Carter, Chief Executive of Jupiter Asset Management, said: "The news of the partial nationalisation of the UK banking sector is a seminal moment. In the short term, this should reassure depositors that their savings are safe - they are effectively being underwritten by themselves as taxpayers.

"In addition, the government's willingness to provide substantial amounts of liquidity to allow the banks to fund their operations will, at least in the short term, help support confidence in the financial system by encouraging the banks to reopen the interbank lending market.

"While equity shareholders in the banks have clearly seen sharp falls in share prices, the fact that the banks have not been fully nationalised means that they are not being wiped out. They will, as a result, be able to participate in any upside going forward - once the taxpayer has had its cut - although we still have to see the details on an individual bank basis and so the prospects for individual shareholders will obviously vary from one bank or another.

"Despite the move by the UK, and other, governments, Western economies are effectively experiencing recessionary conditions and the credit crunch is continuing to manifest itself in terms of rising unemployment and falling consumer confidence. This will result in increasing loan defaults and a subdued mortgage market for some time going forward.

"We welcome the move by the UK, along with other governments, to cut interest rates by 0.5%. However, we would be astonished if short term interest rates in the UK were not to fall further in the months to come. I would not be surprised to see interest rates fall to 3%, and possibly lower, during 2009.

"As a result, savers will see diminishing returns on their deposits and they will increasingly seek out a safe and reliable income. I believe that one of the enduring themes to come out of the credit crunch and market turmoil will be a return to 'back to basics' investing. In other words, I think we will see a move away from the tendency for investors to chase an apparently high income that has been 'manufactured' from complex, leveraged and ultimately risky structures and a shift back to traditional income investing.

"It is worth remembering that over time, the majority of investors' total returns from equities come from dividend growth and the reinvestment of those dividends. Profit warnings will undoubtedly increase, some companies will have to cut their dividends and the overall yield on the market will fall as the banks cut their payouts. But there are still plenty of well-managed companies that will be able to grow their dividends and being able to buy their shares on yields of some 4% to 6% looks significantly more attractive than the returns investors can get elsewhere.

"I have been impressed by the resilience of our investors during this crisis. They have shown no signs of panic and clearly recognise that investing in shares is for the long term. We have also seen many willing to add money to their funds during the current weakness on the view that shares will recover from their current lows. This is an approach we agree with. It is also worth noting that in such conditions, the practice of drip-feeding investments into the stock market through regular savings schemes can prove beneficial.

"At Jupiter, our approach remains to invest in high quality companies with solid balance sheets that have the ability to grow in a difficult environment. It is part of the skill of Jupiter stock-pickers to identify which companies are likely to do well for investors over the medium to long term and emerge from this crisis in stronger positions than they entered it."

NOTE
The above commentary represents the views of the Fund Manager at the time of preparation and may be subject to change and this is particularly likely during periods of rapidly changing market circumstances. Their views are not necessarily those of Jupiter and should not be interpreted as investment advice. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given.