Outlook is worst since the crash, say bosses
The chancellor has suffered his first big setback since the budget as it emerged that confidence among businesses had slumped to its lowest level since the financial crisis.
According to the Business Confidence Monitor survey from the ICAEW, the accountancy body for England and Wales, confidence among businesses is in negative territory in every region and almost every sector of industry in Britain, despite figures showing that sales are rising and are expected to remain buoyant over the next year.
A subdued domestic market is not good new for UK-focussed businesses. However, many of our funds and the individual holdings within in them are either overseas operations or have operate globally across a spread of overseas markets. This global diversification dilutes/spreads our investment risk across many international markets.
Investor sentiment sours for UK equities as Brexit looms
Britain is the least liked region for equity investors while the US is the most preferred, new research has found.
Bank of America Merrill Lynch said the UK endures the “worst sentiment of all regions” in its latest global fund managers’ survey. Germany and Spain are this month’s most favoured European destinations for investors, with a net positivity rating of 16 per cent.
The most bearish forecasts were for China, with 54 per cent predicting a slowdown next year. The US is the most favoured equity region for fund managers.
With a net rating of -27 per cent, down from -19 per cent last month, British equities are the least favoured. Market concerns about the UK have increased as its approaching departure from the EU “stokes renewed uncertainty,” Bank of America said.
Just 11 per cent of fund managers expect a global recession next year. Optimism fell to its lowest level since November 2008, however, with 44 per cent of investors predicting that global growth would slow down over the coming 12 months.
The US is the most favoured equity region for fund managers, with a net rating of 14 per cent. Despite recent volatility, the average expectation for the S&P 500 is that it will rise another 12 per cent before peaking. A third of respondents believe US stocks have already peaked.
Growth in eurozone is stalling
Economic growth in the eurozone slowed sharply in the third quarter to levels last seen more than four years ago.
Figures from Eurostat, the European Union’s statistics agency, said that gross domestic product for the 19-strong bloc had risen by 0.2 per cent from the end of June, against expectations of 0.4 per cent. It was the slowest rate of growth since the first three months of 2013.
Whilst this is not positive news, such cyclical variations in economic activity are inevitable. The eurozone is still growing, just at a lower pace. The annual pace of economic growth was slower than anticipated at 1.7 per cent during the three months to September, against forecasts for a 1.8 per cent rise.
City traders bet on interest rate freeze amid Brexit turmoil
Brexit chaos is set to halt the Bank of England’s rate rise plans, investors are betting. Markets are not pricing in the next increase in interest rates until January 2020, following sharp moves in derivatives contracts linked to future borrowing costs.
Traders were expecting at least one rise from 0.75% to 1.0% next year — with a possibility of further increases — but have scaled back their bets after a series of resignations over Theresa May’s Brexit deal plunged the prime minister into a political crisis last week.
“The market clearly thinks that in the event of a no-deal, the Bank would cut rates,” said Rob Wood, UK economist at Bank of America Merrill Lynch.
This is good news for stock market sentiment, as higher interest rates have a negative impact on share values (due to higher finance/borrowing costs and depressed consumer demand).
Don’t rush to buy back in, JP Morgan tells investors
It is still “too early” to invest in domestic British stocks such as banks, housebuilders, retailers and property companies, analysts at JP Morgan warned this month.
JP Morgan said that investors should hold off buying back into domestic stocks. Its analysts argued that even if Britain did agree a deal with the European Union, the likelihood of it passing in the House of Commons initially looked slim.
JP Morgan advise that only when a Brexit deal appears to be secured will domestic stocks be “investable” again, as the downside risks would evaporate. At the same time, a rising pound would constrain the performance of exporters.
UK shares have been unloved since the referendum, while international stocks have prospered.
The Brexit vote in June 2016 didn’t just divide the nation, it split the FTSE 100 index of leading shares right down the middle.
The market’s fears that Brexit will damage the UK economy have driven down the value of the pound and thus boosted the sterling value of global stocks’ overseas earnings, while at the same time depressing the valuation of domestic shares.
Alex Wright, the manager of Fidelity’s Special Situations fund and Fidelity Special Values investment trust, is known for being a contrarian investor. He says the unrelenting negativity that investors are showing UK shares is making him feel more positive about their prospects for 2019. He points to a number of UK stocks standing on what he sees as unduly cheap valuations.
When investing in unloved companies you shouldn’t necessarily wait for good news before taking the plunge. By investing when no good news is expected you put the odds in your favour. It is a dilemma even for the bravest of investors to plough more liquidity in to the UK market right now. On balance, we see further uncertainty and turbulence in the UK stock market and will therefore refrain from any bold reinvestments, in the foreseeable interest of our clients’ pension funds.
The information in this blog or any response to comments should not be regarded as final advice. Please remember that the value of your investment can go down as well as up, and may be worth less than you paid in. Information is based on our understanding at November 2018.