It's been an eventful summer. Taking a step back, we can look at the big picture of what's happening around the world and where growth may lead to some positive returns for battered Brexit-affected investors.
So despite the soap opera - what should we be doing?
Phew, what a summer! From failed military coups, suspicious or otherwise, to political leaders changing, or not in Labour's case, and the economic uncertainty that results from Brexit. The net result of this has been the hyperbole from some of our more enthusiastic journalists, leading to some exaggerated headlines which undermines confidence.
It is at moments like this that we should in fact sit back and enjoy the theatre of all these changes. I would recommend a decent Sipsmith gin poured over ice and lime with some Fever-Tree tonic water in a long glass. Now we can consider the economic and investment world in a far more objective way.
First of all let's look at the big picture. The global economy figures are very similar from all the leading economic data providers. The IMF have pulled back the growth forecast for 2016 to 3.1% after the Brexit vote, with a figure for next year of 3.4%. The long term average for global growth is around 3%. So no need to panic here.
Secondly, the US economic data has also been pretty robust with encouraging employment numbers. Now I suspect that we will be expecting to see these slow down over the forthcoming months, but none-the-less both confidence and property figures seem pretty positive. Our concerns really seem to be about the less than enthusiastic alternatives that we have for presidential candidates. Both of them are going through their party coronation ceremonies; one is a follically-challenged business buffoon, and the other has a somewhat unreliable track record for telling the truth. The only good news coming out of this will be that the economic policy of the USA is going to be dominated far more by the experience of the Fed and Ms Yellen, and far less reliant on the populist politicians.
Next to China. Here, too, we are still seeing good growth figures, although their reliability is always open to question. However at somewhere between 4% & 7%, these are still perfectly positive. The years of double digit growth were too far and too fast. In fact, slower growth on what is now a much a larger value means that in real terms the economy is growing on a larger basis than before. The fears around China are not about the economy, but rather its political actions and influences in the South China Sea. Its superior force may allow it, in effect, to bully the smaller local nations.
Then we should turn to the Eurozone, where again figures have not been bad, although the impact of the effect of Brexit has yet to be fully factored in.
Then we should turn to the Eurozone, where again figures have not been bad, although the impact of the effect of Brexit has yet to be fully factored in. Lower and slower yes, but still growth. The concern for this area will be the major elections in France and Germany where we are very likely to see changes at the helm. Hollande is struggling to regain credibility and Merkel is trying to ensure a smooth succession to an as yet unknown Prince Regent.
Of course there are many other areas to consider especially in the developing world, but even here there have been few new negatives coming to light. Despite recent rises, the commodity prices of metals and oil are still weak, and much of this has already been factored in. Now there is one country which really does gives us cause for question and concern - and that is us.
Now here I have to be careful as I may go against my own tenet of not talking down economies. This is easily done and can be very damaging as it impacts both consumer and investor confidence. As yet we have no idea what Brexit really means, but the vote has already had an impact and is shaking confidence. Significant UK property developments have been delayed and some overseas investors have redirected investments elsewhere. The answer is that it will and has already had an impact, but this certainly does not have to be fatal. It rather depends upon what Brexit really involves and what actions the government takes to encourage investments, both internally and externally.
It looks as though the Osborne budget collars are already being loosened as we move from the dictionary of austerity, to the language of "living within our means" as we heard from our new PM.
I would like to see this taken much further though, with far more dynamic investment propositions for investors to participate in by way of Infrastructure Bonds. Private investors could invest in these and get better returns than they would from deposit accounts. The planning of such infrastructure, the Bonds, and, of course, house building would drive a wave of development and investment which could, at least in the shorter term, act to negate the potential withdrawal of European Union (EU) and Brexit investments, until such time as our access to the single market and other areas of the EU are properly defined.
For us, as investors, we have to consider some key risks which are heading our way. One, of course, is inflation which, with a weaker Sterling, will inevitably have an impact. Thus interest in linkers and real assets which can provide some inflation hedge will be key parts of portfolios. Additionally, global investment in areas away from the UK will provide a hedge against the lack of clarity around our current economic future. This has already proved beneficial and I suspect will continue.
What we cannot do is just sit and stare like those ubiquitous illuminated rabbits watching this political farce play out in front of us. So prepare some of those defences I have described, and also look to build up a cash pot so that you will be able to take advantage of those bouts of volatility which I think are going to be inevitable over the next few months. Although I always say that "you cannot time the market: it is time in the market", every so often there will be a summer crash sale when good quality assets are marked down at stupid prices.
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And finally… at last the South Koreans have come up with the answer to all the militaristic blustering of their Northern compatriots. Who needs new ballistic missiles or new submarines when you have a new training regime. It appears that South Korean soldiers deployed near the border with the North take ballet lessons as part of their training.
So for this Pas de Deux all that will be required will be a Port de Bras, and all will be resolved.
"Points gentlemen, please"
Have a good week.
Justin Urquhart Stewart
Seven Investment Management
Justin Urquhart Stewart is one of the most recognisable and trusted market commentators on television, radio and in the press. Originally trained as a lawyer, he has observed the Investment industry for 30 years whilst in corporate banking and stockbroking, and has developed a unique understanding of the market’s roles and benefits for the private investor.
This article represents a personal and light-hearted view from 7IM, and is based on current financial news and events around the world. Its content should not be used for investment purposes and you should contact an independent financial adviser before making any investment or financial decision.
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