Investment Views

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July 2019

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

Investment Views for Jul 2019

  • Positive
  • Neutral
  • Negative
Asset Class Current View Outlook

The evidence points to a continued slowdown in global growth with the softening common to all major advanced economies. World trade volumes remain weak. There is clearly a loss of momentum with much of the malaise down to a sharp fall in manufacturing output in the US and the eurozone. With unemployment at such low levels we expect this to begin to filter through to job losses, and although wage growth has been rising, we expect this to slow before long which may impact consumer confidence. However, with central banks now adopting a more dovish tone and with relatively strong corporate earnings (for now), equities remain our favoured asset class. We fully expect episodic bouts of volatility reflecting trade and geopolitical tensions.

Fixed Interest

Political and economic risks are expected to keep government bonds well supported as ‘safe-haven’ assets. The economic slowdown is the primary reason why government bond yields are falling. Corporate bond yields have also fallen yet still offer a premium over sovereign debt, although an economic downturn would likely lead to an uptick in default rates demanding a constant assessment of risk and liquidity. In the short term this looks unlikely as interest rates are being cut which means that the economic cycle will be extended for a while longer.


With the real estate cycle at a mature stage the prospect for capital growth is limited. Income yields remain relatively attractive although the sector is not without risk given the weakness in economic growth and geopolitical risks. A no-deal Brexit is likely to cause UK capital values to decline, albeit to a limited extent. Elsewhere, there is increasing concern about a possible ‘asset bubble’ as surplus liquidity chases limited supply and so a cautious approach is required.


Industrial commodities – a poorer global growth outlook is hampering demand, and this is directly reflected in softening commodity prices. In particular, the strength of China’s economy continues to be a primary influence on price levels.

Oil – prices have recovered some lost ground as tensions in the Gulf have escalated and if conflict ensues then prices could spiral upwards. However, sluggish global growth will weigh on demand and is expected to act as a brake on any rise.

Gold – any uncertainty is likely to increase demand for gold’s safe-haven qualities and should central bank actions effectively devalue the worth of conventional currencies gold will be a source of refuge. A softer dollar, given the expectation of a decrease in US interest rates, should also be supportive.

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


Although UK inflation remains steady, the prospect of sterling weakening further in the event of a no-deal Brexit will add to inflationary pressures. However, sluggish growth coupled with ongoing uncertainty is likely to stay the hand of the Bank of England in pushing up interest rates. Consequently, cash currently serves only as a diversifier, helping to reduce portfolio risk by dampening volatility.

Equity Region Current View Outlook

The appointment of Boris Johnson as PM is unlikely to provide any relief to the political uncertainty that has emasculated the UK for so long. With sluggish global economic growth acting as a drag on the UK economy and sterling’s relative value expected to dictate the market direction, we maintain our neutral outlook.


Despite its relative strength, the US economy is set to slow sharply in the second half of the year reflecting the drag from the fading policy stimulus and the sapping of confidence by the trade war with China. In the light of this, the Fed is expected to begin to reduce interest rates in stages and by perhaps as much as one per cent.


Economic growth, especially in the manufacturing sector, remains weak. Recent polls show economic sentiment has turned negative and the European Central Bank (ECB) has announced that further monetary easing will be applied given that inflation remains stubbornly low. The options being discussed by the ECB are such that European banks have expressed concern over the likely impact on their profitability and in turn their ability to lend to the real economy. Questions are being asked as to whether fiscal policy stimulus is now required to sit alongside loose monetary policy?


The general economic outlook suggests further deterioration as domestic demand is hit by the forthcoming sales tax and external demand softens. Inflation is expected to remain subdued and we expect the Bank of Japan to keep policy loose for the foreseeable future. Potential headwinds are a breakdown in the trade negotiations, a stronger yen (reflecting its safe-haven qualities), and the current dispute with South Korea over historical war reparations. Despite the market offering excellent value we maintain our neutral stance.

Asia Pacific and Emerging Markets

Excluding China and India, economic growth is expected to remain weak across emerging Asia economies. The slowdown in exports from the region reflects the wider reduction in global demand. To offset this, policy is being loosened with expansionary budgets and infrastructure projects. China’s economy is slowing steadily with a decline in exports and housing construction. Domestic consumption is increasingly the driver of the economy. The chances of a settlement in the trade spat with the US look increasingly slim and, in any event, this is likely to be a protracted affair.

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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