Fisher Wealth Management

FISHER WEALTH MANAGEMENT MARKET UPDATE

With the US Midterm elections set for 7th November, 2006, Fisher shares its view on the probable outcome and the potential impact on capital markets.

Winners and losers

The Republicans may likely lose seats in November but it is doubtful the Democrats will win a majority in Congress, despite speculation to the contrary. The reasoning? Over the past century, the House has never changed hands unless the Senate has too. Democrats must keep all of their own seats and win almost every close-race seat in the Senate to win the House. In addition, there are more Democratic Senate seats up for re-election than Republican and more open Democratic seats than Republican.

Market reaction

• Suggestions that the Democrats will win a Congressional majority seem to have spooked the markets - uncertainty depresses markets, making stocks a good value at present and setting the stage for an upside surprise.
• In the coming weeks, we believe markets will realise a transition of power to the Democrats is unlikely and will move upwards in response.
• A reduced Republican majority should result in political gridlock, limiting potential for far-reaching legislative reform over the next two years. This will be bullish for markets.

Are markets elephants or donkeys?

• Despite a popular belief that markets prefer one party over another, history shows little difference in their performance under either party.
• Capital markets would vote for political stability and against any legislative change that might lead to redistribution of wealth through taxation and welfare reform, perceived as assaults on capitalism.

Andrew Teufel, Director of Research at Fisher said, "We at Fisher are unpartisan in our political allegiances, as are markets which tend to react more favourably to a continuation of the status quo rather than the election success of any particular party. In the upcoming Midterm elections, the Republicans enjoy structural advantages which should prevent the Democrats winning an overall majority. This is bullish for equities. Furthermore, a reduced Republican majority will restrict legislative and social reform which should boost US markets and have a positive effect in markets globally.

"We believe that equities have been undervalued all year. With the uncertainty surrounding the Midterms seemingly priced into shares, we feel this is an even better opportunity to own equities than at the beginning of 2006."

NOTES TO EDITORS

FISHER INVESTMENTS EUROPE LTD and FISHER INVESTMENTS

For a copy of Fisher Wealth Management’s comprehensive Markets Commentary report, visit www.fisherwm.co.uk or call 0845 458 1194.

Fisher Wealth Management is the operating name of Fisher Investments Europe Limited which is registered in England and is authorised and regulated by the Financial Services Authority. (Company number 3850593. Registered office: 16 Curzon Street, London W1J 5HP). Investment management services offered by the Company in the United Kingdom are provided by Fisher Investments.

San Francisco-based Fisher Investments is a discretionary, fee-based investment manager and adviser, established in the USA and regulated by the US Securities and Exchange Commission (SEC). The protections of the UK regulatory system, including the Financial Services Compensation Scheme, do not apply in relation to its services. The Company provides a variety of wealth management strategies and services to high net worth individuals and institutions, throughout North America and the United Kingdom.

With its founder’s industry history going back over 30 years, Fisher Investments has built a reputation of experience and innovation. From engineering the Price-to-Sales Ratio, to pioneering the identification of the Small Cap Value asset class, to recent developments in behavioural finance, Fisher Investments has continued to develop capital markets investment technologies for the purpose of providing excess return relative to benchmarks.

Ken Fisher's ‘Portfolio Strategy’ column in Forbes magazine, which he has been writing for the last 20+ years, is at www.fi.com/forbes.

The past is not necessarily a guide to future performance. The value of investments and the income from them will fluctuate with world stock markets and international currency exchange rates.