Investment Committee 05/12/18

As we have all seen in the news, ‘Brexit’ is dominating and overshadowing everything by a long way. It is worth however reminding ourselves that globally there are bigger issues, namely president Trump and the trade wars with China.

On the issue of Brexit, Financial Markets hate uncertainty. Lack of clarity, failure by MPs in The House of Commons to agree, and the air of negativity is causing the current volatility. This is fueled by the chances of a “no deal,“ another referendum and the possibility of a General Election. A further referendum from a Market view point seems the best of the bad outcomes in terms of Market reaction.

We believe a soft Brexit is on the cards and it will not be sorted anytime soon. It appears those who voted “leave” wanted to leave, but not by very much. UK fears have not just reached their highs but have gone way beyond. This will mean for investors there will be real opportunity in finding value in UK markets once we finally have some clarity.

Lastly on UK markets, we believe a weaker pound is no disaster. Again if we look at most of the companies in the FTSE100, a weaker pound adds to their profits once overseas earnings are repatriated. Overall, we feel we should be underweight in the UK (which we are already compared to our peers) but long term the fundamentals such as company balance sheets and dividend yields look good.

We note Emerging Markets have had a tough 2018 but we believe keeping the faith will pay dividends in 2019. If we expect the US to slowdown and the dollar to weaken, emerging markets will receive a major boost.

Fixed Interest and Bonds are doing their job, providing a ballast during this period of heightened market volatility and although they appear unexciting, they serve their purposes in helping to provide some stability. Long term we still believe equities offer the most value.

In the US, we have seen a major correction in equities following discussions with China and the ongoing trade wars. We do believe the US is under pressure domestically which will cause the US to soften its approach. News reporters in China have already alluded to the fact that they seem optimistic following meetings at G20, which can only be viewed as positive news.

We feel it is important that we remind clients during these volatile conditions about two key points about markets and why it is never a good idea to make knee jerk reactions such as selling down to cash.

  1. Downturns tend to be followed by upturns – Research has shown that the average duration of a bear market (a market in which share prices are falling) is less than one-fifth of the average bull market (a market in which share prices are rising) and while the average decline of a bear market is 28%, the average gain of a bull market is over 128%. The key takeaway is that a bear market is only temporary, and the next bull market erases its declines, which then extends the gains of the previous bull market. The bigger risk for investors is not the next 28% decline in the market but missing out on the next 100% gain in the market.
  2. You can’t time the market – Timing the market can be incredibly difficult and investors who engage in market timing invariably miss some of the best days of the market. Historically, six of the ten best days in the market occur within two weeks of the ten worst days.

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.