Investment Views

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August 2019

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

Investment Views for Aug 2019

  • Positive
  • Neutral
  • Negative
Asset Class Current View Outlook

The escalation of the US-China trade dispute has dampened sentiment over the near-term prospects for the global economy. Across a broad spectrum of countries, the slowdown in investment growth indicates that the trade war is taking its toll. Industrial business confidence has continued to fall and, although the services sector is less bleak, it is largely robust household consumption growth which is the standout factor within economic data. Despite recession worries, largely on the back of the US Treasury yield curve dipping in and out of ‘inversion’, the current mix of good and gloomy data suggests that a global recession is not a given, certainly in the coming months. Consequently, and with central banks expected to be accommodative alongside reasonable corporate earnings, equities remain our favoured asset class. However, trade and political tensions are likely to lead to periodic bouts of heightened volatility.

Fixed Interest

With about $15tn of global sovereign bonds currently offering a negative yield, many government bonds now offer a return-free risk rather than a risk-free return. Owning them only makes sense if further capital gains are expected, or if they are held in a balanced portfolio as a risk-off asset to counterbalance credit risk. It is difficult to know the extent to which the widely expected cuts in interest rates are already priced-in, and with corporate bonds offering a yield premium over sovereign bonds we prefer credit on a relative basis. However, given the late stage of the economic cycle we seek quality rather than very high yields to offer some safeguard in volatile periods.


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 – the latest escalation in the US-China trade spat has caused most metal prices to fall given that they are directly exposed to the new round of tariffs. The softer global growth outlook, especially the weakening of the Chinese economy, is also hampering demand thereby weakening prices.

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

Gold – bouts of investor uncertainty are likely to increase demand for gold’s safe-haven qualities. 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.


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

With PM Boris Johnson’s 31 October deadline for leaving the EU ever closer the UK economy continues to be emasculated in uncertainty. Whilst UK consumer spending remains generally robust, it is largely the weakness of sterling which has supported the equity market so far in 2019. 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 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 light of this, the Fed is expected to begin to reduce interest rates in stages and by perhaps as much as one per cent. This, together with further possible support as President Trump looks towards seeking re-election in 2020, could extend the economic cycle for a little longer.


Economic growth, especially in the manufacturing sector, remains extremely weak. Economic sentiment remains negative and the European Central Bank (ECB) is expected to shortly apply further monetary easing given that inflation remains stubbornly low. Questions are being asked as to whether fiscal policy stimulus is now required to sit alongside loose monetary policy, but political pressures may delay the timing and extent of any boost from this direction.


The equity market has recently shown some signs of a rebound but is expected to be caught between expectations for a US interest rate cut and concerns over an economic slowdown. Bouts of investor uncertainty increase demand for the yen’s safe-haven qualities which in turn negatively impacts exporting companies. We favour domestic-oriented growth companies seeking to tap into Japan’s long-term change to its economic and social structure. However, despite significant support from the authorities and the market offering excellent value, the time horizon is such that 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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