Investment Committee 04/09/2019

Tariffs and Brexit dominate. Whether Boris proves to be a Ben Stokes and our hero remains to be seen! The UK and Europe are working toward a compromise on Brexit, but a constitutional crisis is brewing. The UK Government is in turmoil so lots of noise in the political spectrum. A split country, Election and hung parliament are all in the offing.

The above said our belief is that we should be able to negotiate “something!”, that said, markets have reacted positively in the wake of the current political backdrop, with the UK stock market performing well.

Perception is low, global investors don’t like the UK and for that reason it is prudent to still hold UK equities, once we see stabilisation and inflation then UK assets will help markets bounce back.

From a Global perspective Tariffs are the only game in town. August was a crazy month with China and Trump threatening to pull out of talks, progress seems to be happening in this space now and Hong Kong seems to be moving in a better direction. This was all engineered by Trump to get people back to the negotiating table.

The Trump trade wars are all about ducking and diving. Alleged phone calls with China show Trump is clearly worried. The US is slowing, polling is mixed, and Trump is trying to get rates cut. He desperately needs a strong US economy, or he won’t get re-elected in Nov 2020.

Against the above backdrop Tariffs are lots of noise. But the noise is dissipating, and a compromise is coming. Chinese know what Trump is doing and want the compromise. The Chinese don’t really want anything to blow up. They want an economy which rolls on. Our view is that we won’t have a mega trade war and Brexit will have a compromise.

After a shabby 2018 stock market, returns in 2019 have been strong across the globe, but as ever there are anomalies in world markets;

  • Dollar is strong, US doing more stimulus and progress in Brexit talks will bring dollar down which is good news, especially for emerging markets.
  • Big distortion is bond yields. The compression is not sustainable unless we believe recession is imminent which we don’t. We believe Bond yields will go back up which is a good thing for the world.

Right now, UK investments out of favor, but will become more attractive in 2020. Don’t jump yet, there is perceived value in US, Europe and Emerging Markets. There will be positive returns in these geographical areas going forward irrespective of the Brexit politics.

Big picture regarding equity holdings is that we should be overweight globally, US underweight and Europe is still undervalued.

Big news for Europe next week is the ECB stimulus which is a good thing to do. So Geopolitical Crises will go away. German Chancellor Merkel will want to go out on a high. German recession threat is a red herring. So, a combination of Europe being cheap in valuation terms, currency weak and fiscal spending will galvanize Europe.

This article is for information purposes only – should not be perceived as financial advice. We recommend you should always speak to a financial adviser before making any investment decisions.

Please note past performance is not reliable indicator to future returns. 

Your investment may fall as well as rise and you may not get back what you put in.