Investment Committee 01/06/2019
- 1st June 2019
- Posted by: Celticfp
- Category: Investment Committee
Another day and overnight we have a new Tweet for Trump, further turbulence for the global markets but what does it all really mean?
Well if we first focus on the US, we continue to see stretched valuations on growth companies, largely fuelled by the big tech stocks. The Dollar has defied expectations and continued to strengthen, it now looks expensive and it feels that there is a real potential for it at some point to roll over in the medium term. This would be good news for global emerging markets; this would also tie in with the consensus that the US is in a late cycle (the point before recession) and although we don’t have a crystal ball, that could be in 12 months or 3 years.
The last crucial point to mention about the US is of course the ongoing trade wars, or maybe it’s a cover for America to suppress the rise of China as the world’s super economic power – whatever your viewpoint it’s not good in the short term for US Stock Markets, which like all markets hate uncertainty…
These factors of the US give us the impression we should be cautious, we’ve recovered well so far in 2019, despite the May mayhem. It’s our view that we should take some of our profits and now consider a less volatile, less expensive asset class where we can attempt to achieve a better risk versus reward trade off.
Emerging Markets (EM) remains structurally exciting and it must remain a core allocation (subject to no world trade war blow ups). EM still provides value and growth potential in the long term; proof is in the pudding. Taking credit risk in this area is good.
In the UK – we hate to mention it, but BREXIT continues to plague the markets, the press and it seems all our lives. It’s certain that the uncertainty is going to continue, but that said there is still green shoots of optimism out there which if managed well can be capitalised on. However, when it comes to this area it’s key to ensure we invest money in the right way, “value” which avoids companies that are overpriced seems to be the right investment style to take.
Staying on the political theme; we view a Corbyn government to be a bad concept for UK business, which of course would have a rippling impact on the stock markets. However, Corbyn has a lower opinion rating than Theresa May when last surveyed before her resignation, who knows how this will develop moving forwards. That said we continue to monitor the situation and how it will impact on all our investment solutions.
Touching on the month of May which has seen a correction in UK markets, we don’t believe May is a precursor to the rest of the year. For us to see another May this year, there must be something adverse in the global economy.
If we look at European earnings growth, it’s much greater than America’s, Europe valuations are also at a much lower valuation point than the US, this gives us better opportunities for medium term growth. Most people consider Europe to be a populist mess. The reality is that it’s messy, but it’s not apocalyptic.
Politically speaking making Europe work more effectively needs to be the main objective, if they can start to make this work it will drive markets on. Noises of more countries leaving Europe has dissipated, most countries now believe they need to stay in to access recovery and financial support from their neighbours. No longer as fragmented as UK politics – but they also no longer have grand views of further integration.
There is scope for inflation which in the UK we’ve seen a small tick up in April, largely driven by low productivity.
What our main worry other than some of the risks already mentioned, well we believe that it is debt – it’s a key risk to review. As interest repayments increase for governments, the less cash they have to invest into their economies. What do you do about it? The classic approach is to become stricter on your allocation decisions.
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.