Given the extraordinary behaviour of markets we are seeing, 7IM Chief Investment Officer, Chris Darbyshire, provides some key points to consider:
- Fundamental economic data doesn’t indicate that the prospects for growth have changed since the start of the year.
- Markets reflect the positioning of the sum total of investors – they are not driven by something an individual investor knows that the rest of us don’t, but they do to an extent reflect what investors think other investors are thinking and so can diverge in the shorter term from the economic fundamentals.
- Falling oil prices should not be seen as a negative and the benefits are yet to be fully felt by way of GDP.
- Consumption figures are healthy in the UK, US and Europe.
- Rather than the fixation on manufacturing data (which may be down to the sheer amount of data that’s available), look at the much-larger service sector. Job growth in services has been very positive, particularly in the US.
In terms of 7IMs portfolio positioning, we don’t think it’s wise to make a risk-on/risk-off call on markets when they behave this differently from what the fundamental economic data shows. This may mean some short term pain, but over the longer term we believe that diversification and focussing on the fundamental data will continue to pay off.