Investment Line: Market Update - February 2019
Investment Line is a regular investment bulletin produced by Mattioli Woods plc. The communication provides an update on funds, highlights some of the areas we are focusing on, and shares our thoughts on the issues of the day.
Brexit continues to wreak havoc on Parliament with both Conservative and Labour ‘losing’ MPs to the new Independent Group in Parliament. In practice, this might not make a great deal of difference given the way the various votes have gone so far, but it signals the dissatisfaction and tensions within the House. We have no new information or reassurance to offer, but it does seem as if an extension is going to be sought to the March deadline. It looks as if Labour will ultimately back a second referendum to avoid the ‘doomsday’ outcome of the UK crashing out, but whether this would gain parliamentary approval is also in doubt. All the possibilities – including the ‘dreaded’ no-deal Brexit – are in theory still on the table, but the hope for some sort of positive resolution remains. Having toyed with whether this is an incredible opportunity to add UK exposure – at least for more risk tolerant investors – we feel this case cannot be made sufficiently strongly and are holding off. Even if we get a reasonable benign outcome at this stage, there is plenty of uncertainty ahead as we negotiate our future relationship. It would seem as if a dramatic development is going to be needed to generate a favourable wind for the UK’s future journey – perhaps a rapid deterioration in the economic fortunes of Europe. That couldn’t possibly happen…could it?!
Financial markets have continued to enjoy a good start to the year after the unsettling events of December. The Federal Reserve’s more dovish stance coupled with apparent progress (or at least the suggestion of it) on trade talks between the US and China have allowed for healthy gains so far this year. After such a rapid sell-off as we saw in the final quarter of last year, some sort of bounce was to be expected, but the speed and timing probably caught many by surprise. After a period of reflection, however, markets may decide to take something of a breather. The dual drivers of markets mentioned above are to a degree exclusive of one another. If progress is made on trade, the Federal Reserve is more likely to have the confidence to raise rates. On the other hand, any assistance from the Federal Reserve to markets would be most likely to occur against a background of trade and other tensions persisting. Also lurking in the background now is a global slowdown that seems to be gaining momentum, carrying with it the possible transmission into recessionary conditions. Europe appears to be in serious difficulties and is not in a strong position to weather a meaningful downturn, with its banking system still in a perilous state. We may have been cautious for some time but it is quickly becoming the consensus view that 2020 will be very difficult and 2019 might get almost as challenging. Holding your nerve in this environment is important, but equally one must retain flexibility and a constant sense of vigilance regarding what might happen next.
Investment Line is written and edited by members of the Mattioli Woods Group investment committee and is for information purposes. It is not intended to be an invitation to buy, or act upon the comments made, and all/any investment decisions should be taken with advice, given appropriate knowledge of the investor’s circumstances. The value of investments and the income from them can go down as well as up, and you may not get back the amount invested. Past performance is not a guide to future returns. Mattioli Woods plc is authorised and regulated by the Financial Conduct Authority.