A brief insight into the latest market dynamics and details of any changes occurring within our model portfolios.
Market data
Each of the last three weeks I’ve opened the Weekly Investment update with a comment around the hurricanes in the US. The same applies to this week where hurricane Irma threatens to supercede hurricane Harvey with its magnitude. The impact has continued to send investors into safe havens and the price of gold continues to rise. As a result of the shutdown of a major refinery in Texas, oil prices have risen over 5%.
Also in the US President Trump has agreed a deal to ease the US borrowing limit (currently nearly $17 trillion), until 15th December to avert a crippling shutdown.
The eurozone economy continues to provide very positive economic data. The European Central Bank (ECB) has, this week, raised its eurozone economic growth forecast for the year from 1.9% to 2.2%, the fastest growth in 10 years. ECB President Mario Draghi, said that the growth in the first six months of the year grew higher than expected. The announcement came as the ECB kept eurozone interest rates on hold and hinted that its Quantitative Easing programme may be scaled back which caused the euro to surge.
Gary’s market comments in conjunction with our investment partners
Japan’s most recent GDP figures were much better than anticipated with the highest growth figures seen since March 2015. The country has now experienced its longest streak of uninterrupted expansion in 11 years. The latest figures imply an estimated annualised growth rate of 4% for 2017, much higher than the market’s expectation of just 2.5%. This has been driven both by greater than expected growth in private consumption and business spending.
Looking to capitalise on this domestic growth opportunity within the portfolios, LGT Vestra have therefore added the Baillie Gifford Japanese Smaller Companies fund. The fund has already done very well, and is up 8.3% since inclusion in portfolios in July, shaking off the well documented geopolitical concerns surrounding the region.
Will UK Interest rates rise?
Economists remain divided about the Bank of England’s potential action given inflation remains above its 2% target at 2.6%. Data around UK Manufacturing, showed positive gains but other indices for construction were broadly neutral. Uncertainty around this still prevails
PORTFOLIO ACTIONS
There was a marked flight among investors to Gold last week as a result of North Korea firing a missile across northern Japan that led many to take stock of their portfolios. As a response to the risk stakes being raised, the ultimate ‘safe haven’ asset rose by 2.5% in value, and over the month of August has climbed 4%. 7IM holds between 6% and 8% across its portfolios.
Sunday’s nuclear test by North Korea is also likely to mean that concerns remain high amongst investors that the tensions may escalate further. The way forward depends on China’s tough choice between a North Korea with nuclear capabilities or closing down its neighbour’s economy which could lead to political chaos and mass suffering. China’s additional concern is that any breakdown of the North Korean state could also leave China with a border that sees US troops lining up alongside South Korean allies.
Sources: LGT Vestra and 7IM
