It’s Oh So Quiet…

Stock Markets

Here are the key factors that Whitechurch Securities believe have influenced investment markets in recent weeks.

  • Markets rose early in June only to fall back towards the end of the month as Central bankers took the limelight from politicians and investors moved into more of a risk-off mode.
  • The Federal Reserve spooked investors with fears that a more aggressive US interest rate policy could provide a headwind going forward.
  • The ongoing trade war tensions also dragged on investor sentiment with the Asia Pacific and Emerging Markets proving to be most exposed, and lagging developed markets.
  • The overall effect was the MSCI World index finished broadly flat (+0.3%) with a small weakening of the pound marginally enhancing returns for UK investors with overseas exposure, with the sterling index return showing +0.7%.
  • Whilst markets lacked direction during the month, volatility remains subdued. Although global equities are showing more elevated levels than we saw in 2017; the VIX finished the month at only 15 having reached 18 during the month. Going forward it is realistic to expect volatility to be more in line with longer-term levels.
  • Geopolitical headlines will continue to play a significant role in unsettling investors over the summer, with the ongoing concerns of the effects of a trade war and Brexit likely to dominate.
  • Currency continues to influence market returns although currency movements also proved more muted over the month. Strong US data and rising interest rates saw an extension of the rally in the dollar and a weakening of the pound enhanced returns for UK investors with overseas exposure.
  • Away from stockmarkets, the oil price remained around the highest levels we have seen for four years. The increase in the price of the black stuff is contributing to renewed concerns of inflationary pressures.
  • Political uncertainty continues to support demand for ‘safe haven’ bonds; although this has been tempered by inflationary concerns and bond markets have showed little direction.
  • Commercial property has continued to be a good diversifier and our exposure once again produced a steady gain in June.
  • Although global stockmarkets broadly moved back to positive territory, the elevated level of volatility of the first quarter persisted through much of April. After exceptional low levels of volatility in 2017 it is realistic to expect volatility to be more in line with longer-term levels going forward. Geopolitical headlines continued to play a significant role in unsettling investors, particularly the prospect of a “trade war” between the US and China alongside an escalation of tensions between the US and Russia over the situation in Syria.

Historical volatility

We remain more focused on central bankers than politicians. We still believe that interest rate policies at home and overseas will be key drivers of asset prices and meetings this month should provide more guidance. Our view is that any interest rate increases are likely to be cursory due to a lack of sustained inflationary pressure and fragile economic growth.

This has been reinforced by sluggish UK economic data reducing the likelihood of an imminent UK interest rate rise.

The recent political turbulence is just background noise, in our view, and does not alter our investment outlook.

Our top down view remains focused on the belief that there is value to be had in equities versus cash and bonds, with a number of areas offering long term growth prospects and attractive dividends.

A well-diversified portfolio can continue to provide cash beating opportunities in a number of areas for those prepared to ignore short-term noise, focus on valuations and take a longer-term perspective.


The above article was first published by Whitechurch Securities, July 2018