Good morning gentlemen, its been a very busy time on investment markets and we look forward to an interesting chat around Brexit, the US, markets, oil and a whole lot more. Adam as per usual is asking the questions so over to you Adam.
Hi Lee and Peter. Thanks your time today. First question of the day Peter: you recently had your monthly investment committee, were there any big changes made?
Given that we held our nerve pre-BREXIT and then have benefitted from the post-BREXIT rally we have decided to remain steadfast given our over-weight exposure to international equities and the benefits that we have seen from a weaker pound.
It’s now been over a month since the Brexit - have markets reacted in the way you expected?
Our experience and knowledge has taught us not to panic in times like these and so we fully expected an overreaction in the markets immediately after BREXIT followed by a period of recovery. Obviously, the immediate losers in the UK were the house builders, travel & leisure, banks, and the general retailers but with sterling falling to a 31-year low the multi-national companies rallied on the back of what is deemed to be future benefits from exports.
And what of your clients, how have they reacted?
Our clients have been relatively calm mainly due we think to us getting our message out very quickly via email, video and a podcast on our website and verbal conversations on the phone. To be honest they appear to thankfully trust our judgement given that we have faced worse situations over the past decade and this does not feel the same as say 2008 and 2011.
Some experts now think the worst is behind us, is this being a tad premature and do you expect more volatility ahead?
I think it’s premature to say the worst might be over given that we probably face many years of uncertainty, but it’s all about navigating your way around the BREXIT, we cannot change what has happened but what we can do is benefit from the opportunities that it will undoubtedly throw up over the coming months and years.
While the Bank of England held off cutting interest rates in their last meeting, is there still the prospect of a UK rate cut later this year?
that we fully expect GDP in the UK to decline over the coming quarters the Governor
of the Bank of England is likely to act sooner rather than later, therefore, an
interest rate cut in August is very likely, if not then, they will likely do so over the
autumn months. Also it would not be a surprise if the BofE implements a further
round of quantitative easing as a secondary measure.
Were some investors right to pile into gold post Brexit ? Does it offer the safe haven status that it did in the past?
Gold yields nothing, however, neither does cash, nor some parts of the bond markets, therefore it is understandable that in a zero or negative yielding world, with so much uncertainty around, some investors have rushed into gold as a “safe haven” asset class, particularly those of a nervous disposition. This is not a course of action we advocated.
You mentioned the opportunities that Brexit may present, how have you been investing during these conditions?
In conditions likes these we like to be selective given that the “baby tends to be thrown out with the bathwater” and that gives us opportunities to buy things at lower prices. Clearly, this is a time when stock pickers are active, but of course, it’s also a time when passives and investment trusts on deep discounts look interesting.
What markets currently look the best value in your opinion?
The markets that looks interesting are those that well be supported by loose central bank policy such as Japan, Europe and the UK. However, we are in the eighth year of a bull market, and the second longest bull market on record, therefore, we must mindful of that statistic and remain patient at times. In terms of best value, it might be that value investing becomes more interesting over growth, given that growth is becoming harder to find.
Are eyes already turning to the next big geo-political event with the US presidential elections in November? Could the result again unsettle markets?
Geo-political risks are always an issue for the markets, given their uncertainty, and markets hate uncertainty, as for the US presidential election, whoever wins it will take time for the new incumbent to introduce new policies. Clearly, if Trump wins the markets might wobble but generally markets the first year of a presidency are not the issue, it’s normally if a president is re-elected for a second term it’s the latter part that creates any shocks.
While the attention has shifted to Europe and US - for obvious reasons - how are things in the wider world with China and emerging markets?
China is struggling to balance growth and deleveraging , when a country the size of China goes from an export led to a domestic led economy your undoubtedly going to get real problems and whilst there are issues in Europe the emerging markets and China are extremely important.
Remember, 70 per cent of the world’s population, and land mass, is in the developing world therefore what happens in these economies, and markets, is clearly more and more important to the developed world. Similarly, whatever the Federal Reserve Bank decides to do on interest rate hikes will have an effect for Emerging Markets and that’s what’s making the current investment environment so difficult.
Is the oil price still having an impact on equity markets?
In the early part of year the
crude oil price was fairly
correlated to the equity markets but the likes of BREXIT has changed the day to
day trading patterns, however, I would expect the oil price to become prominent
again especially if it breaks lower and the price falls back into the US$30’s
given that this will create issues for the US oil shale businesses that could
then have a domino effect on the markets.
Thanks Pete, any final comments you'd like to add?
I think just to mention that when Lee founded the business he was extremely keen to ensure that we were always able to demonstrate value for money, total transparency and being able to go the extra mile.
It is probably worth mentioning therefore that he has just implemented on-line indicative portfolio performances on our website. We believe that this puts us in a very small group of wealth managers of our size to report so openly this way. The fully interactive performance can be viewed on the link above.
Well I think that's it from me then, thanks as ever your time today!
Thanks both, should anyone wish to know more about our wealth management services they should not hesitate to get in touch. We look forward to seeing what August might bring.