Please find below our Market Update for the week ending 7th September 2018.
A brief insight into the latest market dynamics and details of any changes occurring within our model portfolios.
It seems we regularly start by an update from the United States where the headlines continue to flow at pace. Concentrating on the important updates leaves us looking at trade deals, those agreed with Mexico, pending with Canada and then edging closer with various other countries. We feel that notwithstanding the noise agreements will be reached almost certainly to the benefit of the US and this continues our confidence in the bull run we have seen in their market.
There appears to be a positive shift in tone with ongoing Brexit negotiations between the UK and Michel Barnier who said that the EU was willing to offer an unprecedentedly close relationship after exit. Realistically, we are likely to seeing more ‘to me to you’ before we get the final answer. This and the mix of economic data has led to a modest fall in the FTSE this week though on a medium term view we think there is value here. Company profits and dividend yields remain historically high and will be a strong support once we have the removal of some of the uncertainty that is with us presently.
Talking of certainty most see that Mark Carney remaining Governor of the Bank of England as a positive move which will help through the next 18 months.
We saw UK manufacturing (Purchasing Manager’s Index) slip to its lowest level for 2 years but despite the spin some have put on this the actual number still indicated growth and the reality is that the sector ‘only’ now makes up 11% of our GDP. It is sad to reflect on that, but it does mean overall it has a much lesser effect on the UK as a whole.
The EU is beginning one of the biggest reshuffles of top officials with politics playing a key part in the positioning. New presidents will be appointed for the European Commission, European Council, European Central bank and European Parliament. Just as well there is nothing else up for discussion!
In the last week or so we have heard that European inflation slowed which is good news for interest rates, but this was not enough to save the main European markets from falling back slightly.
Emerging Markets were also under pressure with Argentina and Turkey still facing very real challenges but as LGT Vestra mentioned last week in certain areas this upheaval is creating opportunities. Any downward pressure on the US dollar, which we are seeing some early signs of, would be well received in many parts of the world.
Blue Sky’s market comments in conjunction with our investment partners
We have completed a full review of the current investments we hold and following the changes we highlighted last week are happy for now to maintain our positions. Our fairly modest exposure to Emerging Markets has not delivered to this point but we feel that value is returning here with the abatement of the rise of the Dollar. Counterbalancing this nicely has been our exposure to the United States, with our Morgan Stanley and Schroder funds delivering great returns.
In common with so many commentators we expect more volatility through the remainder of this year and for that reason we will continue to avoid short term speculation and focus on companies that have strong cash flows and are able to cope well with a variety of outcomes.
The team has begun its formal asset allocation review for the next period to decide how we will look to take advantage of market opportunities through this year and into 2019. The process starts with a review of key world economies, financial and political developments that could affect market returns. We will then have a number of forward looking scenarios to present to our asset allocation committee. This in turn allows us to forecast expected returns from each asset type and so arrive at the best blend for our investors. We are broadly comfortable with our current mix of assets but remain ready to change proactively and at very short notice. We look forward to updating you in the coming weeks on any enhancements we make.
Sources: LGT Vestra and 7IM