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30 May 2017
For a brief moment, the conventional wisdom about emerging markets was turned on its head. Britain, the US and Europe took an increasingly unpredictable turn via Brexit, Trump and the rise of the anti-EU right. Meanwhile, China, India and Russia started to look reassuringly stable. Where the upheavals continued, as in Brazil, the changes at least looked to be for the better.
Since then headlines over Brexit, Trump and European politics have pushed China concerns to the backburner. But this week, investor worries over China and its mounting debt pile returned to the fore with Moody’s downgrading the country’s sovereign debt rating for the first time since 1989.
25 May 2017
The recoveries of oil and commodity prices last year have been key. The export of raw materials accounts for around 42% of Brazil’s annually traded goods2. When the world economy is doing well, so should Brazil.
24 May 2017
When April’s retail sales figures came in a bit better than expected, there was little celebration. Few believed this was anything more than an Easter-related blip. And sure enough the latest figures from the corporate coal-face suggest that the pressures on the High Street are very real.
Having said that, emerging market investing is a broad category; encompassing countries as divergent as South Africa, India, China and Turkey, all with their own unique issues and economies. The next political crisis is never far away, with the news flow surrounding Erdogan and Zuma the most recent examples. That is why the companies I include in my portfolio have to be capable of withstanding the occasional storm, meaning they must have strong balance sheets and offer an attractive return on equity.
23 May 2017
It is now 20 years since the stock market flotation of Amazon. Quite rightly, this anniversary has focused attention on the remarkable story of how an online bookseller revolutionised retail. In two decades its sales have grown from $16m to $136bn. The company is now valued at nearly twice as much as Walmart, the world’s largest bricks and mortar retailer. Almost single-handedly, Amazon has changed the way the world shops.
Last week a more welcome display of modernity found form in roughly the same part of the West Midlands, with industrial robotics giant FANUC opening its new UK headquarters.
22 May 2017
As bad weeks in politics go, US president Donald Trump and Brazilian president, Michel Temer could probably share notes. But less than a week later and Trump is jetting around the world, making speeches and meeting world leaders while the most likely scenarios facing Temer are impeachment, resignation or cancellation of his term.
The period of poor physical and/or mental health in old age that comes just before you die is not an easy thing for any government to talk to voters about. It’s not just grim news for individuals, but the country too because its aging population will only place more pressure on the system as time goes on, and money has to be found to meet the cost.
19 May 2017
While Labour and the Liberal Democrats have vowed to maintain the ‘triple lock’ throughout the next Parliament, the Conservative Party plans to abandon the system which sees the state pension raised in line with whichever is the highest out of inflation, average earnings or 2.5%.
The problem in the first instance was that easy monetary policy and quantitative easing (QE) was designed to ensure that the banking system had enough liquidity to cope with the exceptional stress in the system post-Lehman. It also intended to give the banks themselves time to restructure and rebuild their balance sheets and capital base. In no way were they prepared to take on any ‘risky’ lending in such an environment - so we had little or no multiplier effect and thus a severe lack of underlying demand in the economy.
Nearly nine years ago, the government channelled £20.3bn into the financial services group, acquiring a stake that eventually came to 43%. In selling up, the government has made a nominal profit of £900m, marking a landmark moment for the UK banking sector in what has been a controversial decade.
18 May 2017
The inference is that markets are content with the likely prospect of a full five years of majority government with a bigger mandate than last time. That would mean less uncertainty – no election in three years time when the economy might be doing less well – and the ending of a government whose slender working majority could conceivably be tested by by-elections.
17 May 2017
16 May 2017
At the same time, possibly more than ever before, most industries are seeing a huge amount of disruption. At Fidelity, the input of over 140 equity analysts covering the whole range of global sectors helps us to sort between the potential winners and losers in this period of extraordinary change.
Last week’s inflation report forecast prices to hit 2.7% by June and then reach 2.8% in the final quarter of 2017. But if the current trajectory continues we could see inflation overshoot this forecast - if price rises hit 3%, Bank of England governor Mark Carney will need to pen a letter to the Chancellor explaining why inflation is a percentage point above the Bank’s 2% target. Consider that it’s hardly been six months since the governor was writing to the Chancellor to explain why inflation was so far below target.
There aren’t many advantages to being the wrong side of 50. One very clear benefit for investors of a certain age, however, is the fact that, whatever the market turns up, you’ve already seen something similar. My two charts this week are a perfect visual representation of Mark Twain’s famous adage that history doesn’t repeat itself but it often rhymes.
A deal between Russia and Saudi Arabia to do “whatever it takes” to reduce global oil stocks, via cuts in production, has pushed Brent Crude to above $52 a barrel. That added 1% to the value of oil majors BP and Shell, helped a host of other commodity-related stocks to the top of the risers board this morning and pushed the FTSE 100 to a new high near 7,460 before prices ebbed.
15 May 2017
In the investment world, signals are emitted in as great a number, if less strikingly and more demanding of sophisticated interpretation.
12 May 2017
11 May 2017
Those are the headlines and there’s no doubt that Mark Carney, the Governor of the UK’s central bank, remains an extremely careful man. He worries that the two-year Brexit negotiating period will be very difficult for the British economy. And because of that he continues to err on the side of caution.
These days though there’s a new big player in town – the American shale energy industry. Largely untapped before the turn of the millennium, US shale producers can now start or stop wells relatively easily and, collectively, on an immense scale.
10 May 2017
9 May 2017
Fund managers spend a great deal of time focused on individual stocks, getting to grips with a whole host of company-specific factors: growth prospects, competitive advantage, balance sheet strength, management quality and the like. I suspect they are sometimes barking up the wrong tree. They’d be better off just deciding which sectors are going to do well this year and which will underperform. Asset allocation is the key determinant of investment success.
Sabre-rattling off the Korean peninsula, Brexit leaks, Labour’s election manifesto, the rise of the far right, the Middle East, a falling oil price - the world has never seemed so uncertain. You’d never know it in the financial markets, though. Nasdaq at a new all-time high, Apple at a record valuation - and most puzzling of all to investors this week, the VIX at its lowest level since 1993.
Now attention will shift to whether President Macron will in fact be able to deliver on his relatively ambitious reform agenda. Parliamentary elections in June should give us some indication for how much reform France is likely to see over the next few years. Macron’s En Marche! movement could struggle here, as it lacks the traditional party power base, so a range of outcomes is possible.
8 May 2017
French equity markets have been elevated ever since Macron edged ahead in the first round of the election last month and his victory on Sunday in the second round, firmly predicted by the polls, was largely priced in. As such, initial market gains today were small and later reversed as investors booked profits.
And yet he says that the release of April consumer price index data makes him more convinced than ever that such a move is in the offing.
5 May 2017
“Assets in general are somewhat perfectly priced, especially in certain equity and credit markets. I think markets are vulnerable to disappointment.”
Encouragingly, the core consumer price index (CPI) turned positive in January. Of course, the Bank of Japan is committed to a target of 2% so there is still some way to go. However, the positive economic backdrop provides a fertile environment for domestic corporates to grow earnings and dividends.
4 May 2017
A year on, oil is back above $50. While this is short of the $60 a barrel that some majors indicated they needed to balance the books, life is considerably easier than it was 12 months ago. Production is paying its way again and the companies - staple investments for yield-hungry shareholders - are once again able to pay their dividends out of cash-flow.
We still don’t have election manifestos for the main parties, but a dividing line appears to be emerging around the future of the state pension.
For some companies living through that fervour, the end was, unknowingly, already in sight. Stocks had been priced for success before anyone knew who had the winning technologies of the future. That left some vulnerable companies fatally exposed to a change in market fortunes.
3 May 2017
Last night, Apple chief Tim Cook blamed leaks about the next iPhone for the surprise dip in iPhone sales. The unexpected weakness in sales, saw the share price slip, nonetheless the tech giant still posted strong figures with a 10% rise in earnings and the dividend.
2006 was a year of global monetary tightening with the US tightening cycle having started in 2004 on the back of reasonably solid gross domestic product (GDP) growth and a modest pick-up in inflation. Global GDP growth had averaged around 5% per year over the three years to the end of 2006.
2 May 2017
Chief among these will be an interest rate decision from the Federal Reserve on Wednesday. No change in rates is expected but the market will be on the lookout for any changes in tone, particularly during a speech by chairman Janet Yellen on Friday.
It is good to under-promise and over-deliver. Markets, in particular, respond favourably when things turn out better than expected. That, however, is not Donald Trump’s style. He has never knowingly undersold himself.
On Monday the government unveiled plans to accelerate its autonomous driving initiatives by investing £13m in a range of projects as part of its modern industrial strategy.
28 April 2017
It was in April 2007 that the first major US sub-prime mortgage lender filed for bankruptcy, and rumblings in the global banking system began.
27 April 2017
It’s fair to say that we all had a bit less to worry about in 2014.
26 April 2017
Think back to 2006 - a year of global monetary tightening, with the US tightening cycle having started in 2004 off the back of reasonably solid GDP growth and a modest pick-up in inflation.
This late into a multi-year bull market and after another solid start to the year for equities, once again, investors might be tempted to put this old adage to the test.
Whilst investors exited 2016 backing the idea of a ‘Trump-Trade’ that envisaged greater fiscal stimulus and less emphasis on monetary policy, this enthusiasm has waned somewhat. This especially follows the failure of the Trump administration to take any meaningful steps regarding healthcare reform, a factor which has drawn into question other areas of proposed policy. There have been a couple of weak data points in the US that have added to this uncertainty with soft auto sales figures and easing credit growth.
25 April 2017
According to the http://www.digitallook.com/index/FTSE_100/dividend-yield/desc" target="_blank">Digitallook website, 13 FTSE 100 shares currently yield more than 5%. A further 15 companies yield more than 4%. That means nearly a third of the blue-chip index offers an income of more than 16 times the Bank of England’s base rate and more than twice what you might earn from a 10-year government bond.
Investors suffer from a whole host of behavioural biases that can lead to poor outcomes. One that is particularly relevant today is the tendency to over-react to events that are big but unimportant and to underplay information that is apparently trivial but actually significant. General elections fall into the former category - especially those for which the outcome is almost certain.
Macron emerged with the largest share of the votes - 23.9% compared to 21.4% for Le Pen - in the first round of voting and markets took this as a strong indication that he would now go on to win in the final vote next month.
24 April 2017
Despite all this, continental European stock markets made modest progress in Euro terms in 2016 (while delivering strong gains in sterling terms) and have continued to rally in the first quarter of 2017.
21 April 2017
Yet the President’s comments to the Wall Street Journal last week centred not on the currency weakness of others but what he sees as an overly strong dollar¹. The timing may be significant. If the US could defrost relations with China, that might pave the way to a deal on North Korea.
20 April 2017
That said, it makes complete sense from her point of view for a few reasons. First, it will allow her to negotiate the terms of Brexit without the distraction of an election within a year of the talks concluding. A decisive win would allow Mrs May to neutralise pressure groups on both wings of the party who might otherwise use the current slim parliamentary majority to force her hand. A bigger majority and a five year timetable before she needs to go back to the country will help her push for a smoother transition and, everyone will hope, a better outcome.
After an encouraging run of quarterly results from Citigroup, JPM Chase and Bank of America, Goldman Sachs yesterday announced a rise in first-quarter profits which fell considerably short of analysts’ expectations.
19 April 2017
Prime Minister Theresa May announced this morning that she will table a motion in parliament this week to bypass the Fixed-Term Parliament Act that would otherwise bar an election until 2020. A two-thirds majority is needed in parliament to secure a new General Election.
18 April 2017
Are we at full employment?
April is not always cruel. A year ago it paid investors to look through the looming uncertainty of the EU referendum and remain fully invested. Many of us can reflect on an unexpectedly good year in the markets. The spring of 2015, however, was less forgiving. It would have been an excellent time to take an extended break as stocks fell for the rest of the year. It’s not unusual for Easter to trigger a change of direction.
It’s not until he points out quite how well diversified the fund is in terms of its global reach that the response is more encouraging of the manager’s evident enthusiasm for “eating [his] own cooking.”
13 April 2017
We might call these the myths of passive management which appear to go against active investors’ instincts. They are supported by some fairly heavyweight academic work, not all of which has real practical value. Outside academia, there is a commonly peddled argument that given that statistical analysis shows that the average fund over previous periods does not on average outperform the broader market (after fees), therefore any given fund cannot be expected to outperform in future. This is simply incorrect logic.
As well as my usual 10 minute round-up of the outlook for the main asset classes, geographical areas and investment themes, we got through 16 questions during last night’s broadcast. You can watch the programme for my full answers, but here’s a taster of half a dozen of them.
12 April 2017
Unsettling news may seem at odds with a relative calm in stock markets. World stocks are pretty much unchanged compared with a month ago1. However, we’re told that stock markets don’t like uncertainty, so should investors be more worried about the future? If so, is there anything they can do about it?
The temporary respite in price rises is largely down to this year’s Easter break falling later in the year compared to 2016. Airline tickets, sea transport, package holidays and hotel deals all tend to rise around Easter time. But the so-called ‘Easter effect’ will show up in April’s numbers, so expect an uptick in prices when inflation figures are published next month.
11 April 2017
Whether that’s by luck or judgement is an open question, but the direst economic predictions made after Britain’s vote to leave the European Union and then the election of Donald Trump as US President have not yet materialised.
10 April 2017
With the title ‘Shaken not stirred’ it promised to be more Bond than bond, but in this instance the two converge and in the process paint a revealing portrait of today’s fixed income market environment.
7 April 2017
1. In the long-run higher ‘quality’ trumps its rivals, but the quality style tends to underperform in a rapidly rising market.
IHS Markit, the data analyst, yesterday published its estimate for shareholder pay-outs in the first quarter, suggesting the total paid by companies in the FTSE 350 - comprising those companies that make up the FTSE 100 and FTSE 250 combined - will reach £20.7billion.
5 April 2017
Cyclical stocks are closely linked to the performance of the overall economy, sectors like materials, consumer discretionary, financial services and real estate. Defensive stocks, on the other hand - in areas such as energy, industrials and technology - experience profits regardless of economic gyrations.
No such training will be needed when the new 12-sided pound coin is introduced this autumn or when the polymer £10 bank note arrives in 2018. We know what our new, reduced-in-size currency will do, and that is buy a bit less than it did a year ago.
Those changes have made “drawdown” viable for a greater number of people. This is where a pension pot remains invested after retirement, with income taken from it.
4 April 2017
As we close out the first quarter of 2017, financial markets have once again shown their capacity to wrong-foot investors. During the first three months of the year, contrary to conventional wisdom, the top-performing stock markets have not been in the US, not even in a resurgent Europe, but in the emerging markets.
All of these things matter. But arguably, the thing that matters the most to your money is the end of the tax year. This happens on the 5th of April. On the 6th, the new tax year kicks in signalling a number of changes that impact your personal finances from rising income tax thresholds, inheritance tax changes to new ISAs allowances and a tax relief tweak or two.
Currently, the latter camp appears to be two-nil up in the game following the hard-charging markets in the aftermath of Brexit and the US election. I suggest that neither group is entirely right and perhaps investors should be watching a different match altogether.
On Wednesday, news agency Reuters reported sources “who are in, or close to, the Governing Council” of the ECB as asserting that markets had “over-interpreted” comments from its 9 March meeting. Investors had taken those comments as suggesting that the central bank was becoming more hawkish.
3 April 2017
In the short term there is a risk to sentiment which investors need to be mindful of, they say.
31 March 2017
15 March 2017
13 March 2017
8 March 2017
7 March 2017
20 February 2017
15 February 2017