Where in the world to invest post-Trump - that's the question
THE past week has taken on a somewhat surreal air with attention focussed on events across the Atlantic. The inauguration of a US President like no other has evoked a strong reaction across the world. And with the latest point blank denial of figures ('alternative facts') we are certainly in for interesting times as President Trump wages war with the media and continues in his own maverick way.
The markets are already a little unsettled by this. The FTSE 100, having reached a new peak only last week, is showing signs of retreating from these dizzy heights. Indeed many market observers are questioning how the market has got this high given the massively uncertain environment that we now face.
It almost feels that everyone is shutting their eyes and hoping that everything will turn out alright, but the real dilemma is where to put money at the moment. Cash is clearly the only totally safe option but with interest rates at historically low levels, returns are negative when inflation is taken into account.
The next asset class to consider in terms of risk is government bonds (gilts). Here, too, it is hard to get enthusiastic as yields continue to languish at desperately low levels. With most are priced at a higher level than the price they will be redeemed at, other than stability, it is hard to see the attraction of the asset class at the moment.
They are supported by central bank buying, in the form of quantitative easing: another uncertainty, as we do not know how long this will continue and more importantly, what will happen when it comes to an end.
The equity market is of course classified as being at the riskier end of the spectrum. Long gone are the days when bank shares were the ultimate in safety and income generation.
However, there is still an appetite for equities, not least because they are one of rather few income generators now. The yield of 3.63 per cent on the FTSE 100 compares very favourably with other asset classes and there is also always the possibility of capital growth as well. Having reached such peaks recently, caution is of course paramount.
As always, there are areas which are not trading at their highest level. The best performances over recent months have come from mining, oil and the cyclical sectors, whereas the more defensive shares have languished somewhat.
Where in the world to invest is also a good question. The US has been the stand-out performer, but after an unprecedented long bull market, questions must be asked as to whether it will continue indefinitely. If President Trump is to be believed, it will.
Clearly clouds of uncertainty are massing over Europe, with three elections looming and Brexit yet to come. The Far East offers some attractions, but dependence on the US dollar could have a significant impact.
No easy solution can be arrived at, but investors should not panic and liquidate everything.This rarely goes well and having seen so many unpredictable events over the past 12 months, who knows what the next year has in store?
:: Cathy Dixon is a director at the Belfast office of Cunningham Coates Stockbrokers, a trading name of Smith & Williamson Investment Management (SWIM). This article does not constitute a recommendation to buy or sell investments and the value of any shares may fall as well as rise. Investments carry risk and investors may not receive back the amount invested. The views expressed are those of the author and not necessarily of SWIM.