Please find below our weekly Investment Snapshot for the week ending 12th January 2018.
A brief insight into the latest market dynamics and details of any changes occurring within our model portfolios.
The Euro soared to its highest level against the dollar since 2014 on Friday – up 0.68% at $1.21130 in the morning – with momentum coming from this month’s ECB policy meeting. The account of last month’s ECB meeting showed it is planning to revisit its forward guidance on monetary policy from earlier this year due to improved economic performance, suggesting this current meeting is following the same theme. European equities are mainly higher also, although this is largely because Wall Street hit another record high, with the Dow Jones index up 0.81% Friday morning at 25,574 basis points.
It has been an interesting week for bond markets, as the US 10-year Treasury bond is moving further above 2.5% – up 2.6 basis points at 2.5572%. Negative predictions over Friday afternoon’s announcement of US inflation data has led to a big sell-off of bonds, as rising inflation erodes the returns that they offer to investors. The sell off on Wednesday has left yields on benchmark government debts at their highest level in 9 months, leading so called ‘Bond kings’ like US billionaire investor Bill Gross to proclaim the start of a new era for fixed-income investments.
Meanwhile, in Asia, Japanese stocks fell for a second consecutive day as the Topix index slipped 0.6%, with industrials and consumer discretionary stocks under pressure. However, Hong Kong’s Hang Seng index rose 0.94% on Friday, helped by the energy sector.
Gary’s market comments in conjunction with our investment partners
LGT Vestra’s MPS investment committee met for the first time of 2018 to go through each portfolio and assess the allocation to each asset class and fund, looking to implement strategies suitable to what they predict to happen in 2018 – particularly those that are underweight. For example, they have decided to increase their weight to the FTSE 100 because of their positive views in UK commodities (predominantly oil), and UK financials.
In relation to China, LGT have more positivity than before due to recovery in their economy since concerns in 2015. GDP has grown 6.9% year-on-year, which was significantly above the consensus just a few months ago. More regulations have been introduced in the wake of the Communist Party’s 19th Congress in October to reduce shadow banking and lower leverage in the financial system. LGT have increased their Chinese exposure by coming out of the Stewart Asia Pacific Leaders and introducing the Blackrock Asia Special Situations fund across the portfolios.
7IM’s latest tactical asset allocation decision is to reinvest in UK mid cap stocks, given the value they represent over their large cap peers.
Sources: LGT Vestra and 7IM