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December 2019

graham bentley

Written by Graham Bentley, Avellemy Investment Committee Chairman.

It seems I've been writing "Trade Wars and Brexit" in investment commentaries since the Flood.

There's a lot of anecdotal evidence that suggests potential new investors have been spectating for months, waiting for resolution of these issues, particularly given 2018's annus horribilis where Cash was King, if a less-than-generous one.

Those spectators watching Donald Trump's Twitter diplomacy may not have noticed the US and UK equity markets were up 27% and 15% respectively over the year to the end of November 2019 - not a paltry return considering we're approaching the eleventh year of a bull market. Since March 2009, the S&P 500 has grown by a massive 17% pa in sterling terms. That said, the US S&P 500 recently hit a valuation level (by cyclically adjusted PE ratio, or CAPE) seen only twice before - just before the Great Depression, and again in 1999 presaging the dot com collapse in 2000. Fed Chairman Jerome Powell's recent statement to Congress suggested policy was unlikely to change and market players now anticipate just one interest rate cut in 2020, which may act as a break on the US market's runaway success this year.

Meanwhile, UK shares that have been so unloved in recent years - the FTSE All Share index is only 3% higher than in January 2018 - appear offer reasonable value, with the CAPE ratio close to its long-term average, and dividend yields well over 4% - double those in the US, and a third higher than their long-term average of around 3%. Boris Johnson's announcement of a Brexit deal, followed by polling showing the Conservatives with a commanding lead over Labour as a General Election approaches, appears to have boosted investors' appetite for UK Equities in November. UK equity funds, which had seen outflows of over £1bn during Q3 2019, saw some recovery with a trickle of inflows in October and a net positive £186m in November; this may indicate the first green shoots of a recovery in investor confidence. Indeed, November saw the strongest inflows into UK Equities this year. However, it is worth pointing out that this figure is less than a third of the average monthly inflow in 2017.

Figures published in November revealed that since 2017, the UK ranks 31st out of the 35 developed economies that are members of the Organisation for Economic Co-operation and Development (OECD). Investment fell by -0.2% a year, versus OECD nations' average growth of almost 3.5%. Despite a narrowing of the Conservative lead in the polls at the end of the month, there is undoubted irony in the fact that many investors still seem to prefer a Conservative outright majority, despite this delivering a Brexit that has caused them so much angst post-referendum.

In Europe, Germany published Q3 GDP figures that confirmed its economy just missed falling into a technical recession. Improved manufacturing data led markets to adopt a more positive view, notwithstanding an impending Brexit clarity. Meanwhile, Christine Lagarde took over as President of the European Central Bank. She has her first policy meeting on the 12th of December, which in case you missed it is UK General Election day. She will have plenty to talk about shortly thereafter.


Finally, President Trump has approved the Hong Kong Human Rights and Democracy Act, which aims to help students convicted for involvement in the ongoing protests to get study visas, while placing government officials under scrutiny. Perhaps less-well known is a second bill banning exports to China of facial and voice-recognition technology that could be used for surveillance. The legislation allows for sanctions against individual politburo members, threatening asset freezes and visa bans on individual officials. With the Chinese economy continuing to slow, these political initiatives will not encourage China to move closer to a trade agreement, especially where the bill hits senior officials in the wallet.

The continued uncertainty and political tensions, despite some encouraging data, means a balanced portfolio remains the sensible solution for most investors.

Ascot Lloyd Investment Committee


Cash: The physical value of cash should never go down and a published rate of interest is added to the capital at set intermittent periods. Inflation could run higher than the interest received, therefore the value of the capital held makes a loss in real terms. Charges for investment products such as pensions may be higher than the interest received and therefore eroding capital.

Bonds: This is effectively a loan to a company or government and an interest payment is paid from the borrower to the lender during the life of the bond. At the end of the term, all the original money is repaid to the lender. A default means that a company or government is unable to meet interest payments or repay the initial investment amount at the end of the securities life.

Property: Returns are driven by the property value and rental income. As property is a specialist sector it can be volatile in adverse market conditions, there could be delays in realising the
investment. Property valuation is a matter of judgement by an independent Valuer, therefore it is generally a matter of opinion rather than fact.

Equities: Also known as Stocks and Shares. Each investor participates in a share of the ownership in a company. The risks are that equities can fall if a company fails to perform or the sector in which it operates underperforms due to lowering demand, policy change or recession. If a company folds, the investor may not receive their money back.

Hedging: A method of reducing unnecessary or unintended risk, similar to an insurance policy.