Investment Views

17.04.2019
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April 2019

Here we summarise our Investment Committee's immediate outlook for the primary asset classes and major equity markets.

Investment Views for Apr 2019

  • Positive
  • Neutral
  • Negative
Asset Class Current View Outlook
Equities

Little has changed over the month with world GDP growth continuing to slow, although the latest business surveys indicate that growth may be bottoming out in some parts of the world. With little sign of a recession any time soon and every indication that central banks will continue to be supportive, we favour equities on a relative basis. Talk of progress in the US-China trade talks may now be largely priced in to markets and so it may be optimistic to expect a significant boost to equities should a deal be signed, especially after the strong market returns in Q1. Returns from here on in are expected to be more muted reflecting lower corporate earnings, and geopolitical factors are expected to continue to cause episodic bouts of volatility.

Fixed Interest

Inflation remains low in almost all major economies. Core inflation in OECD economies continues to fall, and even with current oil prices energy costs will still be a drag on headline inflation for a few months more. This trend coupled with the continued slowdown in global growth suggests that interest rates are unlikely to rise in advanced economies any time soon. Sovereign bonds provide safe-haven qualities, but current yield levels offer limited appeal. Corporate debt carries a yield premium, but longer-term investors may find equities more appealing as long as they are prepared to accept greater volatility.

Property

The shift in consumer spending habits has stimulated demand for warehouses at the expense of retail units as a source of rental income. Student- accommodation, build-to-rent and the healthcare sector continue to offer opportunities. The slowdown in economic growth and Brexit uncertainty is holding back business investment in both the UK and the euro-zone and is acting as a dampener on returns, even yields continue to enjoy a premium over government bonds.

Alternatives

Industrial commodities – current prices largely reflect the news on trade talks and the Chinese stimulus. Recent improved data from China bodes well for metal prices but questions remain as to whether this is temporary given the global outlook.

Oil – recent prices rises reflect a return in risk appetite, voluntary supply cuts by OPEC, renewed conflict in Libya, and western sanctions on Venezuela and Iran. If the global economy continues to slow, as expected, and with increased supplies from surging US production, we expect oil prices to soften towards the end of the year.

Gold – with its safe-haven qualities and the US dollar expected to weaken, we expect demand to grow.

Absolute return – offers the potential to dampen volatility and provide some downside protection, but returns are often moderate at best.

Cash

In the absence of any inflationary shock, short-term UK rates are unlikely to rise and so cash currently serves only as a diversifier, helping to reduce portfolio risk by dampening volatility.

Equity Region Current View Outlook
UK

Despite the Brexit can being kicked down the road once again, with the ongoing uncertainty that this creates for businesses, growth has remained remarkably resilient in the context of the global economic slowdown. Political fragility is ever-present and this also adds to uncertainty, dampening demand and thus growth in the short term. Sterling’s relative value is likely to dictate the market direction until the ‘fog’ of Brexit clears especially given the constituents of the FTSE 100.

US

With US earnings estimates for 2019 in the range of 4-6%, strong job and wage growth as well as consumer data, a soft-landing is more likely than a recession, but with equity valuations near historical averages we maintain our neutral stance.

Europe

Economic data remains soft and could even fall further from current levels. Global trade issues, Brexit, continued austerity, and headline risk around European elections continue to act as headwinds. China remains an important export market for the region and so the strength of its economy is pivotal.

Japan

The economy is sensitive to marginal changes in global growth and trade, but relative valuations look attractive after a period of underperformance. The Bank of Japan remains committed to its yield-targeting policy and additional fiscal stimulus is due in Q3 this year. Potential headwinds are the consumption tax hike in October this year, a breakdown in the trade negotiations, and a stronger yen (reflecting its safe-haven qualities).

Asia Pacific and Emerging Markets

Although we expect the pace of growth in emerging Asia economies to be weak the fundamentals remain largely positive and current valuations remain attractive. Fiscal and monetary easing in China are in the pipeline to counteract a slowdown and this should improve China’s growth and spill over to other economies within the region. A trade agreement between China and the US is expected to be greeted positively by the markets. Any strengthening of the US dollar, against expectations is a key risk.

Risk warning: Investors should be aware that past performance of investments is not a reliable indicator of future results and that the price of shares and other investments, and the income derived from them may fall as well as rise. The content of this bulletin is for general information and reflects the general market view of Parallel Investment Management Ltd. - it should not be interpreted as recommendations or advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of the content.

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