Simon’s market view September 2019

In 2018 there was nowhere to hide from an investment point of view – equities (stocks and shares), sovereign debt (e.g. gilts), high yield bonds and commodities all had a very poor year. Equities saw increased volatility due to the concerns that Trump’s initial fiscal policies have run out of steam causing the US to contemplate raising interest rates further than expected. Of course, in the UK continued uncertainty over Brexit has also made it difficult for equities to move forward. Markets do not like uncertainty. However since Christmas markets have bounced forward again making up some of the losses that occurred in 2018. But there is still a great deal of uncertainty and the UK market is down about 6.3% over the past 12 months as I write.

Perhaps the greatest change is that interest rates are now highly unlikely to rise in 2019 and should even in the United States over the next 12 months. This is contrary to the view less that a year ago that they could have to rise upto three times in 2019. Neither the UK nor Europe have much scope to cut rates. Inflation has been falling and although there have been rises in the cost of labour, generally this has mainly been at the expense of profits.

So, are we in for a recession or not?  The OECD (the Organisation for Economic Co-operation and Development) report predicted a modest slowdown, but the likelihood of recession is minimal and world economies are generally in good shape. Interestingly often the most trumpeted news stories such as the trade wars between Trump and China, have very little impact on GDP (Gross Domestic Product) as the products involved are only a small part of GDP. In the UK, a flexible workforce and independent currency are still areas of interest for outside investment.

So, what can we suspect will happen if there is a no deal BREXIT? This would be likely to send the Pound falling, which will most likely force the stock market UP! Currently between 70% and 75% of the earnings of the 100 largest companies in the UK come from abroad. With a falling currency the value of these firms is likely to be driven higher pushing markets higher.  In fact, the UK is one of the cheapest investment markets at the moment and despite the uncertainty investors are starting to consider investing here again. Yes, there are risks in the short term, but the average dividend income from a UK share is some six times what can be achieved in cash investments. Of course, there is short term risk despite this.

Most will be aware that because of the uncertain future that we are facing in investment markets, at Tarvos Wealth, we felt that we needed to reconsider how we manage our investment portfolios. To this end, we partnered with Square Mile, one of the most respected fund research and investment companies in the city to ensure that our clients receive the best quality active investment management in the future.  We are enjoying our partnership with them as they give us a completely new dimension.

Our partners believe, as we do, that portfolios should be managed to minimise risk even if that means missing some of the upside if markets go up. However, they will be in a better position than us to take advantage of market fluctuations, which in themselves create opportunities.  Portfolios will remain fully diversified and suitable to each client’s attitude to risk and will be managed to our mandate. We believe that this is an exciting development for Tarvos Wealth and will put us to the forefront in managing our clients’ assets. Clients will receive a quarterly update from Square Mile.

Files