As always, feel free to connect with your advisory team if you have any questions or concerns, as they are always here to assist you.
Please watch our video where Rachael Simm, Director of Investments at Reeves, elaborates on the importance of staying ahead of market trends. Instead of panicking, it's crucial to remain well-informed. Our mission is to offer you the necessary guidance and confidence to make informed decisions.
Important Updates
Slowdown in China
In the short term, China's economic outlook is weak due to the lack of measures to boost consumer confidence. This raises concerns about China's options to address the situation. They've been selling dollars to support their currency, but its long-term success depends on resolving US-China relations.
The Reeves investment committee has been cautious, allocating only 1-3% to Chinese stocks. Despite challenges, China has substantial reserves (over 3.193 trillion USD) that could help mitigate issues. Strengthening ties with other regions might also balance trade.
China's economic slowdown has affected Europe, with the EU facing economic challenges and some members in recession. However, the UK and US are experiencing growth. China's rising wages have pushed Western companies to explore alternatives, while the US has shifted trade. China's dependency on Western consumption is evident.
China lacks quality goods domestically for higher income growth, leading consumers to seek foreign products. This adds pressure on China's currency, which they're trying to stabilise against USD-denominated debts.
How it Impacts You
A change in sentiment has sparked a widespread sell-off across various types of investments. Remarkably, only one out of fifty-four Investment Association sectors achieved a positive return last week—the cash sector. This significant shift is mainly attributed to the increase in bond yields. Core inflation, a vital measure excluding volatile food and energy prices, has surged. This has led to expectations of prolonged higher interest rates.
Previously, expected rate cuts for the fourth quarter of this year had been taken into account when assessing asset values. This led investors to price assets with this assumption. However, the announcement of elevated core inflation, coupled with the Federal Reserve's statement that rates will remain steady until 2024, prompted a widespread correction in how assets are valued.
In the midst of these market fluctuations, our investment committee has strategically reinforced high-quality assets in portfolios and introduced defensive assets like fixed income. Despite the impact of recent market movements, these assets have seen a smaller decline compared to the broader market.
Amidst the barrage of negative news, there are reasons for optimism. Energy and food prices are stabilising, and Western markets are experiencing record-low unemployment rates, which strongly support consumer spending. Corporate earnings are consistent, and companies are well-prepared financially, reducing the risk of bankruptcy. Our approach continues to involve investing under these favourable conditions while maintaining a balanced exposure to both growth and defensive assets.
With this in mind, we would like to finish with this analogy, “A storm doesn't last forever; the sun eventually breaks through the clouds. Similarly, negative market sentiment is temporary, and the potential for growth remains.”
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