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November 2019

Regular readers will have become familiar with two key geo-political factors that have had the most significant impact on equity and bond markets over the past year. Brexit, and the trade ‘war’ between the US and China, feature in the narrative every month.

The tide of market sentiment has ebbed and flowed over the months, as new tariffs are introduced by President Trump, only to be followed by seemingly positive signals of an impending deal, whereupon those hopes have been dashed as rhetoric takes over.

That said, in dollar terms the US index of the leading 500 companies’ price performance is up over 23%, reaching new record highs. In contrast, the index of the largest UK companies (the FTSE 100) has gained less than 13%. However, given cash returned less than 1% this year, doubtless most investors with exposure to global equities via their portfolios should be more than satisfied.  The typical medium risk investor holding a Risk Level 5 portfolio will have seen gains of over 12.86%, with significantly fewer extreme movements in monthly portfolio valuations to boot.

In principle, tentative signs of at least a partial agreement on trade, and a ‘No-Deal’ Brexit seeming to be off the table, ought to have driven markets upward in October. This expectation was supported by positive news on US companies’ earnings, while the US Federal Reserve cut interest rates by a further 0.25%. Ironically however, good news on Brexit strengthened the pound by 5% against the dollar and almost 3% versus the Euro. This reduces the value of companies’ overseas earnings, while investors are getting less pounds for the value of their overseas holdings. It is also the case that while China may be willing to sign a ‘mini-deal’ on buying more US agricultural products and relaxing constraints on foreign investment, the bigger picture concerns global leadership in technology and neither side seems willing to compromise on their ambition to ‘rule the world’ on that front. It is also possible that President Trump’s domestic issues with impeachment proceedings, while correspondingly launching a re-election campaign, might encourage him to be more outspoken about perceived wrongs being heaped upon the US consumer by an ‘enemy in the East’.

At home, Boris Johnson’s surprise deal with the EU, following the removal of the Irish backstop issue, brought positive news to the market. However, the subsequent extension of the 31st October deadline and more significantly the announcement of a general election to be held on 12th December, is likely to maintain market nervousness in the coming weeks, especially if polling indicates a narrowing of the Conservatives’ lead over Labour. This news drowned out more negative data on the economy, with unemployment rising while vacancies and consumer confidence also took a step backwards.  Final resolution of these issues may be some way off as the new government, whatever its hue, will clearly not bed in until at least the new year.


Europe of course is not immune from these wider developments. Germany remains on the cusp of recession as the trade war does nothing to support its position as the leading international trading nation on the continent. European employment has slowed dramatically to levels last seen almost 5 years ago, while consumer confidence continues to fall. Attempts to prop up the Eurozone economy have seen QE raised to €20bn a month, with an accompanying negative interest rate. It is difficult to imagine what further stimulus could be applied by Christine Lagarde, who has now taken over as President of the European Central Bank from Mario Draghi.

The mantra for investors continues to be to follow the news to maintain connection with events, but not to be precipitous with investment decisions as a consequence. Longer term, markets prosper.

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.