9 January 2019

On the one hand, Technology, on the other, Europe

Here we are in the New Year. Most of us in the investment industry will be happy to see the back of 2018.

Shares did not have a comfortable December. The Santa rally was absent and the end of 2018 marked a difficult final quarter, with the benchmark FTSE 100 Share Index down by over 12% in three months and US shares by even more. We’re not in bear territory yet, but sentiment has been damaged and a flight from equities indicates a risk-off stance is now prevalent.

That said, the New Year has enjoyed a more stable start. Shares rebounded from a post-Christmas low which had seen the Footsie shed some 16.5% from the high achieved just seven months earlier. Hopes that the trade talks between America and China have clearly encouraged investors to take a more optimistic view of the future, though Apple’s recent profits warning shed light on how much more difficult conditions are in the Chinese economy. Korean electronics giant, Samsung, also disappointed with its year-end figures – a further casualty of the slowdown in China.

Talking of Apple, the company has lost its place as the world’s most valuable business, having become the first company to exceed $1 trillion in value, with the shares losing nearly 40% in less than three months. Initially, Microsoft assumed the top spot, but this week Amazon nosed ahead, with a market capitalisation of nearly $800 billion. As if in anticipation of this, Amazon founder, Jeff Bezos, overtook Bill Gates as the world’s richest man last year. Despite the recent shakeout, technology remains a force to be reckoned with in the stock market.

As to the future, with the Commons vote on Prime Minister May’s Brexit terms due shortly, it is hard to make any sensible predictions for the near term. Defeat looks inevitable, but it is what happens afterwards that will determine sentiment. Certainly, this will overshadow such other news as emerges, like the trading statements from the high street which are unlikely to make encouraging reading. Supermarkets, on the other hand, seem to be having a better time than might have been expected, even if the main beneficiaries have been discounters, Aldi and Lidl.

Perhaps the only outcome that investors should be concerned about is a no deal Brexit. Forecasts are for falling sterling and shares if that is what transpires. The pound seems certain to come under pressure, but I’m not so sure about the market, given the international nature of our benchmark index. The more domestically focussed 250 index might have an altogether tougher time, though. Fingers crossed for a softer landing.

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