Equity weakness overshadows strong economic data
As we continue to work our way through 2018, it does seem that markets are heading onwards and upwards, however the risks are now partially subdued. Having said this, we could expect the volatility we saw in February return, however when and by how much is another question.
The financial markets have been a rocky place recently with investors concerned about what is going to happen next. As we have mentioned in our previous market commentaries, risks are high in the markets as equities are reaching new record highs over and over. Positive economic news has been overshadowed by the recent sell off, however economists and other market makers now think that the concerns are overdone. We do not expect the current tensions of market turmoil to impinge on global GDP growth, and sustained market weakness is unlikely. Economists still see global GDP growth picking up from 3.0% last year to 3.2% in 2018, which will be a very good and strong pace of growth not seen since 2011. With the weakening of the US Dollar, this may help boost global economic growth and it can be expected that the current weakness may add over 3% to the level of world trade.
Despite market volatility, the economic data and fundamentals are all strong and we can continue to see resilience and strength in the growth of markets. Short term volatility is expected, and some people will argue that it is healthy, because it keeps “dirty investors” at bay and the money flows pointing in the right direction. We do expect this volatility to continue throughout 2018 and may see things slow down in 2019.
One of the biggest fears in the markets at the moment without a doubt is inflation. With the above statement and growth derived from a weakening US Dollar, CPI and RPI indexes globally are on the higher side from where central bankers want, especially given where global interest rates are. Usually they should be in line and synchronised. Since the 2007/8 financial crisis, interest rates have been at record lows and for a decade we have not seen periods of high interest rates. Despite the cost of borrowing increasing, so is the world of saving. On the upside, low economic volatility and the weakness in the US Dollar can both lift growth by more than economists expect.
For anyone who wants further data to substantiate the position please review the attached Global Economic News Document.
Model Portfolios & Indices
Over the last week we have seen, most of the indices that we track provide a bit of a mixed picture. In the US, markets have fallen slightly which has caused a larger sell off in Asia. This is largely because of Rex Tillerson’s departure as Secretary of State and his replacement with Mike Pompeo, whose views are closer to President Trump’s on matters such as the Iran Nuclear deal. Asia markets were in negative territory this week after the departure of Mr Tillerson and looked set to implement tariffs on Chinese exports.
With our higher equity content allocation, we are well positioned for an uptake in the markets and will maintain this view, until we see that the risks in the markets are elevated. Despite this, our portfolios have reacted well to the changes in the indices and have given us a gain. This would be due to the positive non-equity content that we have in the portfolios, which is benefiting them. This shows the core of OBI and how our strategy has well diversified investments to maintain the capital preservation element.
The data above will not directly correlate to the indices as there is always a delay in pricing because the US markets close significantly later than the European markets and the Asian markets. The data set above reflects the last close and much of the days movements will not yet be reflected in the portfolios due to pricing delays. You cannot therefore directly correlate indices to the portfolios. The value of investments may fluctuate in price or value and you may get back less than the amount originally invested. Past performance is not a guarantee of future performance. Performance figures quoted include the fund manager charges but exclude other fees such as adviser, custodian, switch and/or discretionary investment management fees. Unless otherwise instructed and accrued, income is reinvested into the portfolio.
This Day in History
On this day in 1950, the FBI issues its debut of the “10 Most Wanted List”. The FBI Ten Most Wanted Fugitives is a list maintained by the United States Federal Bureau of Investigation. The list arose from a conversation held in late 1949 between J. Edgar Hoover, Director of the FBI, and William Kinsey Hutchinson, International News Service editor-in-chief, who were discussing ways to promote capture of the FBI’s “toughest guys”. This discussion turned into a published article, which received so much positive publicity that on the 14th March 1950, the FBI officially announced the list to increase law enforcement’s ability to capture dangerous fugitives. How exciting!!!
As always have a wonderful week and stay safe.
Jason Stather-Lodge CFP, MCSI, APFS
CEO & Founder
Chartered & Certified Financial Planner
Chartered Wealth Manager