The Big Picture: economic and political summary for November from QuotedData
Every month here at QuotedData, the investment trust analysts collate the insights on markets and economics taken from comments made by chairmen and managers of investment companies investing across the globe. We organise these to highlight what the sector’s trusts believe are the factors relevant to performance in their particular geography or industry sector.
Markets fell in October with stocks in Asia and emerging economies being particularly weak, on average. The pound lost more ground as the dollar strengthened (possibly in anticipation of further US
interest rate increases). The oil price went into sharp reverse, ignoring any potential impact from the imposition of Iranian sanctions.
Brexit, trade wars, rising US rates and even reduced
availability of research are cited as reasons for concern.
However, many commentators still believe stock pickers can make money
Michael Hughes, chairman of JPMorgan Mid Cap, thinks that
valuations of UK mid cap companies do not reflect their growth
prospects, regardless of the outcome of Brexit. The managers of that
trust say it would be wrong to be too gloomy.
However, the managers of Dunedin Income Growth feel that valuations are relatively full. The managers of Mercantile believe that, while earnings growth is coming through, geopolitical concerns may weigh on markets for some time.
The managers of Strategic Equity Capital think that the advent of MiFID II has accentuated volatility within the UK small cap market, as investors are less well informed.
Jonathan Brown, chairman of Invesco Perpetual UK Smaller Companies, is concerned about the impact of the rejection of the principles of free trade, drawing an analogy to the 1930s.
Nicholas Fry, chairman of BlackRock Smaller Companies, highlights the challenges facing central bankers. The managers of that trust are cautious on the UK economy but think selected UK companies can still prosper.
Sentiment is being driven by geopolitical noise rather than fundamentals but there may be real world impacts from trade and currency wars.
Kate Bolsover, chairman of Fidelity Asian Values, says Asia remains the most dynamic region in the global economy. Nitin Bajaj, the fund’s manager, says the world economy is an extremely complex system and we need to be careful about interpretations we draw from any single policy action such as the introduction of tariffs.
James Williams, chairman of Pacific Assets, does not believe that lurid political headlines generally influence the direction of asset prices. He also thinks Asian economies may be more stable than in previous market setbacks.
Susan Platts-Martin, chairman of Witan Pacific, expects that markets will continue to be volatile and driven more by macroeconomic and political uncertainties than fundamentals.
The management team behind Scottish Oriental Smaller Companies expects to see more rate rises as Asian countries try to defend their currencies. They expect this to weigh on growth in the region.
While there are good reasons to be cautious, there is a sense that investors have become overly pessimistic towards Europe.
Alexander Darwall, manager of Jupiter European Opportunities, thinks that slower economic growth and rising interest rates could, in combination, make refinancing high debt levels more problematic.
Nicola Ralston, chairman of Henderson EuroTrust, believes that adverse sentiment towards Europe is out of step with the performance of the region’s high-quality companies.
Tim Stevenson, outgoing manager of that trust, thinks Brexit will be a disaster for the UK and also damaging to Europe.
Audley Twiston-Davies, chairman of TRR European Growth, hopes for clarity from the Brexit negotiations. The managers of that trust see the potential for an uptick in mergers and takeovers as buyers snap up good companies that investors are shunning on the grounds of a short-term dip in earnings.
Eric Sanderson, chairman of BlackRock Greater European, believes that the ECB will hold off on raising rates for now. The managers of that trust say that any resolution to global trade disputes could be a catalyst for better performance from the region’s stock markets.
The consensus seems to be that Japan’s economy is doing well. There are some clouds on the horizon but it may be that the country is emerging from its long deflationary period.
The manager of Baillie Gifford Shin Nippon says that Japan’s domestic economy is in good health.
Jonathan Taylor, chairman of Schroder Japan Growth, believes that corporate Japan is embracing the challenges posed by its mature economy. The manager of that fund thinks Japan is heading, slowly, out of deflation. He says the Japanese stock market’s reaction to trade threats is exaggerated.
Nick Bannerman, chairman of Baillie Gifford Japan, notes the planned hike in sales tax, scheduled for October 2019, and also mentions the tightness in Japan’s labour market. The managers of that trust point out that wages are rising, unemployment is very low, land prices in the major urban areas are rising, and bank lending is growing. They say that, overall, corporate confidence is strong.
Global Emerging Markets
Increased volatility and threats to markets in the short-term
Hélène Ploix, chairman of Genesis Emerging Markets, notes the heightened volatility in emerging markets but points out that the long-term growth drivers are intact. The managers of that trust highlight the threat posed by excessive Chinese debt, pointing out the importance of the financial sector in China to overall earnings within emerging markets.
Austin Forey, manager of JPMorgan Emerging, gives us an extended look at the drivers of volatility in emerging markets. He is becoming more enthused about some Chinese businesses.
The management team behind JPMorgan Global Emerging Markets Income see some short-term risks but believe valuations are at a more neutral level.
Brexit overshadows the UK property market. Industrial and logistics property still favoured over retail.
Vikram Lall, chairman of F&C UK Real Estate, highlights the threat posed by Brexit and the weakness in the retail sector. The manager of this fund notes that purchases of property by overseas investors and local authorities have been underpinning the UK market. He thinks that Brexit and the direction of interest rates will influence pricing for years to come.
The managers of property-lending trust, ICG Longbow, note the disparity in sentiment toward the industrial/logistics sectors and the retail sector.
The management team behind Target Healthcare REIT say that yields in their part of the market are falling. It is concerned, however, about the pressures on local authority funding.
Steve Smith, chairman of PRS REIT, says that the rental market for family homes, as opposed to flats, is especially undersupplied. The REIT’s managers say the fundamental imbalance between the supply of good quality rental housing and demand remains large.
An in-depth look at the drivers behind various commodity prices including gold.
Richard Prickett, chairman of City Natural Resources High Yield, says that there is increasing evidence that improvements in balance sheet discipline and dividend payments are durable. The managers of that trust give us a comprehensive run down of the factors affecting various commodities.
Malcolm Burne, chairman of Golden Prospect Precious Metals, covers the drivers of the gold price in some detail and lays out the arguments for why we may have seen a peak in gold production.
We also have comments on the global economy from Henderson International Income; the US from Jupiter US Smaller Companies and Baillie Gifford US Growth; Latin America, from Aberdeen Latin American Income; Thailand, from Aberdeen New Thai, an in-depth look at Vietnam, from VinaCapital Vietnam Opportunities; private equity, from Harbourvest; International Biotechnology’s management team answer some questions on their sector; ICG Longbow, CQS New City High Yield and Hadrian’s Wall Secured have some thoughts on the debt sector; and Marc Gabelli, chairman of Gabelli Merger Plus+, talks about the backdrop to his merger arbitrage investments.
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Please click here to access the full macro commentary report for October.
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