14 December 2018

Living in interesting times

A few days ago I was tasked with addressing an audience of an advisor’s clients who were looked after by JM Finn.

It happened that this occasion took place the day immediately following my return from holiday. Musing on how best to handle the Brexit question, I realised that the vote in Parliament to allow MPs to express their view on the terms achieved would be taking place pretty much as I was speaking. This made choosing my approach that little bit more difficult, so I didn’t know whether to feel comforted or disadvantaged when I discovered the vote was not to take place as I travelled home from the airport.

This shock decision of Prime Minister May to defer Parliament’s vote on the Brexit deal simply serves to add more uncertainty into what is already a complex and unsettling equation. The initial casualty of her announcement was sterling, which dipped 1.5%, bringing the pound to its lowest level since August 2017. Shares fared rather better, but then the majority of profits earned by the top 100 companies listed in London are earned overseas.

As you might imagine, even without the added complication of the confidence vote which followed, it has become hard to know where to start when trying to assess the likely direction of markets, so much is going on right now. I am minded of an old investment axiom that nobody rings a bell at the top of a bull market. The same could be said of the bottom of a bear market, but given the way in which we have seen investors heading for the hills in recent weeks, it is when the end of the current long running bull market takes place that we need to think about.

A continuing problem remains the possible trade war between the United States and China and the effect this could have on the global economy. A deal does appear to be in the offing, but President Trump is such a difficult person to read that only when the ink is dry will investors get over their concerns – and maybe not even then. Speculation on what the final outcome might be has resulted in some wild swings in markets on both sides of the Atlantic. Volatility has certainly returned.

The effect has been to see share markets hand back some of the gains made to the early part of this year, though we in Europe and the US are not in bear territory yet – unlike some Asian markets. Overall confidence may seem fragile, but it hasn’t disappeared – yet. The American President made much of his positive influence on jobs, the economy and markets which seems to be encouraging buying on bad days. Certainly, shares are cheaper now than they were at the beginning of the year. If cracks start to appear in the US, though, then the volatility could get worse.

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