World Market Review January 2019

This year has started much more positively than the closing weeks of 2018. Global equity markets have recovered swiftly as a result of two significant changes. Firstly, the improved rhetoric towards China from the US has helped support stocks worldwide. Additionally, Emerging Market equities have rebounded following the US Federal Reserve’s announcement that they will be much more dovish with their interest rate increases.

UK fundamentals continue to look strong as unemployment is at its lowest level since the 1970s. However, the FTSE100 and FTSE All Share lacked growth when compared with other major indices in January as they only increased 3.6% and 4.1% respectively. Many of our CPN portfolios are invested in the Unicorn Outstanding British Companies Fund which gained 5.9% from investment in a range of superior FTSE All Share companies.

The outlook for the UK entirely depends on Brexit, Teresa May has returned to Europe in an attempt to seek and present a revised deal to the UK mid-February. It is likely that some of the uncertainty should clear up this month, which will show positive gains on UK markets. Since the uncertainty has caused the UK Market to be very undervalued, there is a big potential upside if a deal is reached. We remain overweight in the UK as a result.

On 25th January, after 35 days of shutdown, Donald Trump announced a short-term deal to reopen the federal government. The deal will keep the government open until February 15 while negotiations continue over funding for the border wall. More than 800,000 federal workers have been affected in the longest shutdown in US history. Despite the shutdown, the S&P500 increased 8% in January; one of the strongest indices of the month, backed by strong corporate quarterly earnings reports and a change in guidance from the Fed.

The US Federal Reserve left interest rates unchanged in January, signalling that they “will be patient” when determining future rate adjustments. This is big news in the investing world and is a complete turnaround from previous guidance where they had stated that gradual increases in the policy rate would be needed. US markets rallied on news of this turnaround because it has lowered the cost of borrowing for companies and households, therefore boosting the economy. Our CPN portfolios have benefitted from the Baillie Gifford American Fund rising 7.5% over the month.

The Fed’s resulting impact on Emerging Markets was positive, leading to the Hang Seng and Brazilian markets rising 8% and 11% respectively. This has helped ease market fears. Emerging Market’s remain attractive with robust earnings growth and an encouraging backdrop of economic reforms. Although the uncertainty around trade is likely to remain, we believe this is already priced into the market and we see the greatest opportunities here. The RWC Global Emerging Markets Fund contributed to gains in our CPN portfolios as it increased 7.6% over the month. Technology stocks such as Samsung Electronics contributed to a large part of this gain as they saw increases of 19%.

Europe has been caught in the crossfire of the trade war, hurt by the fall in demand from China. With weak economic momentum and political risks through the continent, Europe seems less attractive without any clear accelerator to performance. The ECB has kept monetary policy unchanged. Many European markets saw increases around 6% in January which was in-line with our Man GLG Continental Europe Fund. However, with Brexit still uncertain we remain unenthusiastic about the European growth prospects and will likely look to lower our exposure.

Oil is still making headlines from the political turmoil in Venezuela. In an attempt to diminish the regime of President Nicolas Maduro, President Trump has imposed sanctions on the PDVSA, Venezuela’s state-owned oil company. This will certainly reduce the global supply in addition to backing Juan Guaido’s claim to presidency. We currently hold the Marlborough ETF Commodity Fund, but as we move into February, we will be looking to reduce our exposure here as the impacts of the Trade War has reduced potential growth in the commodities market.

Retreating from a volatile market into cash is a famously losing strategy. In a market with so many mixed messages, those who remain patient and maintain discipline usually profit from others panic. Investors who try to time the market often miss out on sharp gains that can follow down periods. Volatility will persist in 2019 but we will look to keep our active approach as we believe that global markets will continue to expand with significant growth potential in the near term.