Insight Investment’s head of strategy, Matthew Merritt, gives his views on current global economic conditions

Merritt comments: “2009 looks set to be a battle between ostensibly cheap relative valuations and a rapidly deteriorating fundamental backdrop. Our study of previous bear markets associated with financial dislocations and deep recessions showed that typically we have needed to see a moderation in the pace of bad news before markets were able to stabilise. Risk Assets gained some respite over a quieter festive season, but recent macroeconomic releases have resumed the pattern of posting the worst declines in multiple decades or since the Great Depression.”

He adds: “Over the next few weeks the focus will shift towards company profitability as the majority of S&P companies report their earnings for the fourth quarter of 2008. Earnings have already declined for five consecutive quarters, although so far this has been characterised by huge falls in financials profits and modest gains in non-financials profits. Consensus expectations are now for double-digit falls in non-financial profitability, but given the precipitous fall in economic conditions in the fourth quarter it is easy to imagine declines of 20-40%.”

Merritt concludes: “At this early stage of the US earnings season the year-on-year growth rate of -29% is the worst since quarterly data have been compiled in this form in the early 90’s. The declines thus far largely reflect the financial sector and non-financial reports are only beginning to filter out. The worst ever fall in profitability was in the Great Depression where eps fell 75% from its peak and National Accounts profitability fell 101% (i.e. the corporate sector posted a loss in aggregate). While this scale of losses is unlikely, the consensus expectation of -12% non-financial profit growth looks too optimistic and we expect further disappointments.”

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Insight Investment press office                     Tel: 020 7321 1358

Notes to editors

This press release represents Insight’s view as at 21 January 2008

Insight Investment Management (Global) Limited is registered in England and Wales . Registered office 33 Old Broad Street, London EC2N 1HZ. Registered no. 827982. Authorised and regulated by the Financial Services Authority.

Insight Investment manages funds for institutional and retail clients across a range of asset types including equities, bonds, derivatives and alternatives, with the aim of providing precise investment solutions for investment needs. Insight’s assets under management totalled £110 billion as at 30 September 2008.

www.insightinvestment.com