Investment commentaries

Weekly market updates

Investment Review
Month ending 31 October

Markets

A fruitful month for equities in GBP terms. All regions gained over the month, with Japan leading the way, up +5.50%. Emerging markets, the US and Europe delivered +4.58%, +3.57%, and +1.31%. The UK delivered +1.85%.

Bonds in the UK, both government and corporate, moved sideways, up +0.32% and +0.52% respectively. European government bonds performed healthily, up +1.14 and US government bonds lost ground marginally at 0.11%.

GBP appreciated marginally against EUR and JPY, gaining +0.12% versus JPY, +0.56% versus EUR. GBP depreciated 0.86% versus USD.

Oil bounced back from last month’s fall, gaining +5.24%, however gold fell -1.01%.

Economic developments

Brexit dialogues dominated the headline news in the UK. Negotiations are still focussed on exit fees and have yet to cover issues such as passporting rights and trade agreements. Unemployment of 4.3% indicates little slack left in the UK labour market.The UK’s composite PMI rose to 55.8, displaying strong sector growth in both services and manufacturing.

In the US QoQ annualised GDP was up to 3.0% growth in Q3, now boasting back-to-back quarters of at least 3% growth. CPI inflation in the US rose less than expected to 0.4%. US composite PMI was up to 55.2, the highest since January this year. Full employment, low inflation and the promise of potential tax relief has resulted in consumer confidence indicators reaching 125.9, one of the highest figures since 2001.

The ECB kept policy rates the same and extended its bond-buying scheme until late next year at EUR30bn per month, half the previous monthly amount. QoQ annualised Eurozone GDP growth for Q3 was at 2.4%, while headline CPI inflation slowed to 1.4% for the Euro Area in October, with services prices representing the biggest drag. The European composite PMI was down on the month to 55.9 after weaker growth from the service sector, although this remains a very strong reading.

China’s Communist party congress was held in Beijing this month,where President Xi Jinping outlined his plans to balance supporting growth with promoting financial stability. China’s GDP growth was 6.8% YoY for Q3, above the 6.5% target, as exports and infrastructure spending continued to buoy demand. China’s composite PMI was stable for October at 51, in expansionary territory.

The Japanese election dominated headlines as Shinzo Abe and his Liberal Democrats Party won a supermajority in the October snap election.Prime Minister Abe’s new mandate coincides with a boost to consumer confidence, rising to a new record high for 2017 at 44.5 up 0.6 from September.The Bank of Japan decided to keep monetary policy on hold this month. Interest rates were held at -0.10% due to lower than expected inflation.

Investment outlook

Year to date, we have been of the view that better economic data, stronger earnings and rising inflation would favour equities over bonds. This view has served us well and we still believe that shares will outperform bonds this year and that stock selection and active management will continue to add substantially to returns.

Over the month, our outlook has improved modestly. Prime Minister Abe’s success in Japan’s snap election has removed an element of political risk in an under-owned region with improving growth and attractive valuations.

In Europe, the ECB’s decision to prolong asset purchases, albeit at a lower rate, offers greater support to Eurozone assets. In light of these positive developments, we are raising our allocations to Japan and Europe, funding this position by trimming our exposure to the UK, where growth is sluggish and uncertainty weighs on confidence.

Investor insights

  • Investor Insight Autumn 2017

    Published:
    19/10/2017
    Filesize:
    514Kb
    Filetype:
    PDF

    With economic data continuing to improve, we have turned our focus from the outlook for growth to the likely path of inflation and interest rates. We continue to believe that shares will outperform bonds this year, and that stock selection and active management will continue to add to returns.

    View download
  • Investor Insight Summer 2017

    Published:
    17/07/2017
    Filesize:
    226Kb
    Filetype:
    PDF

    Our view remains constructive. We continue to believe that shares will outperform bonds this year, and that stock selection and active management will continue to add to returns.

    We believe that we have seen a synchronised global improvement on the economic side evidenced by better than expected economic data, benign inflation and monetary policies that are still supportive of risk assets, like equities. However, we are mindful that summer is historically a weaker patch for financial markets and are exercising caution in the near-term

    View download

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