PORTUGAL -- Portuguese pension funds had a positive November on the back of a good month in the financial markets, according to pension fund consultant Watson Wyatt.

It notes that the conclusive US presidential election outcome at the beginning of the month removed the uncertainty risk premium, spurring equity markets to 24-month highs by mid-month. This rally was strengthened by a 7% fall in the oil price.

However, the rising US trade and budget deficits contributed to the freefall of the USD, which fell 4% against the EUR to an all time low of USD1.33/EUR, Watson Wyatt noted. This in turn contributed to tentative signs of a possible cut in the euro zone interest rates.

“Euro yield curves were already positioning themselves for a bearish, low-inflation scenario with another 15bps drop in benchmark 30-year rates over the month,” Watson Wyatt said. It added that this would have a negative impact on pension liabilities by year-end, resulting from dropping discount rates.

On the economic front preliminary the US showed an annual growth rate of 3.9% but that elsewhere 3Q04 growth numbers confirmed a reduction in the of pace of growth, with the UK economy showing a 0.4% quarter-on-quarter rise and Japan and the euro zone a 0.1% quarter-on-quarter increase. Consensus forecasts for 4Q04 growth showed downward revisions.

Watson Wyatt added that all asset classes posted positive returns for November, the only exception being international bonds, which were specifically hurt by the USD slide.

It added: “The compounding of SEMP's average asset allocation as at the end of September 2004 with the corresponding indices' monthly returns produced an expected average return of +0.8% (m-o-m) for Portuguese pension funds. Main positive contributions came from euro equities (including Portugal, circa 23% of total portfolio)."