Summer Investment Update
14th July 2017
Global and UK equity markets continued upwards, delivering the seventh consecutive positive quarter in the 3 months to June. The UK election extended the recent run of political surprises but the market quickly recovered on speculation of a “softer” Brexit. Nevertheless, there is a lot of uncertainty around and some sense that this strong rally is running out of steam.
The rally has been driven by a shift in the investment psyche of the majority of investors from a fear of stagflation caused by a failure to address the root causes of the financial crisis, to a belief in a reflationary environment. The economic data has supported this more positive reflationary scenario.
As highlighted previously, this positive outlook is not without risks. First and foremost the extent to which Donald Trump will be able to enact his legislative agenda of tax cuts and infrastructure spending, and secondly high geo-political risks across the globe. In June, these concerns seemed to be more front-of-mind leading to flatter equity markets and falling bond yields. With valuations already high, we see some market participants expressing more cautious views. This is not unusual for this time of the year and markets are looking for their next direction. The prospect of the Fed starting to unwind of QE adds further uncertainty – here we are definitely in unchartered territory.
The economic fundamentals continue to support the view that we are moving into a cyclical growth phase. However, the underlying imbalances and the level of debt in the global economy have not really been addressed since the financial crisis and coupled with demographic and social change, it is not difficult to envisage a return to the subdued growth which has until recently characterised markets and economies.
This global back drop is very relevant to our portfolio recommendations which aim to capture global growth opportunities through their diversified approach. Closer to home in the UK, the election has undoubtedly added to uncertainty in the UK whatever your views on the relative merits of soft, hard or no Brexit. We are already hearing anecdotally of the impact on the residential property market and the outlook for UK inflation may diverge from the wider global trends due to currency and import prices.
Whilst the returns we have seen in the last 12 months are unlikely to repeat, we remain broadly positive based on the global economic fundamentals. For long term investors, this is another uncertain period and portfolios need to be well diversified to accommodate a variety of outcomes.
As always, do not hesitate to contact us if you have any questions about your personal situation.