Turbulent times - and an unsettling autumn
TO say we are living through interesting times would be something of an under-statement. The autumn has been an unsettling and difficult time for the UK stock market and taking 2019 as a whole, despite its international bias, the FTSE 100 has markedly underperformed other markets.
The reasons are well documented, and this mood has been reflected to an extent in the demise of some of the best known names in the industry.
Neil Woodford's investment company has imploded, a process which started with the suspension of his equity income flagship fund in June and more recently we have seen Mark Barnett of Invesco (erstwhile a Woodford protégé) seeing similar concerns and outflows from his funds, although this has not reached such a critical level.
The main concern has been liquidity: both fund managers included investments from the smaller end of the market which can be difficult to trade in sufficient volume. In reality, it reflects the fact that no-one can get it right all the time: even big names.
Outside the UK there does appear to be a general lightening in the mood more recently. The threat of a hard landing for the global economy is deemed to be behind us and a rebound beckons. However, the extent, timing and scope of an economic recovery remains very much a point of conjecture.
Although the trade talks between the US and China have yet to reach a satisfactory conclusion it seems clear that both sides are very aware of how much there is to gain from a deal.
Global bond yields have climbed to their highest levels in more than three months. There has been a rotation from growth to value shares on a global basis and in general there has been much rotation between sectors and regions.
It is interesting to note that equity markets in Europe and Asia Pacific have outperformed the US more recently, although in the US falling earnings have been evident during the third quarter earnings season.
Investors are looking forward, not backwards, focussing on the perceived brighter signs over trade as well as the possibility of fiscal stimulus (a powerful driver of longer-term bullish sentiment).
In the UK it is apparent that a future government is likely to usher in a phase of greater spending which may augur well for the equity market. It is also clear that some elements of the UK market are looking very undervalued, particularly on an international basis, but it is still rather a leap of faith in the run-up to the December election.
Overall, we are still facing a great many uncertainties and there is a lot of “noise” in the markets as well as political distraction – the US presidential election will be upon us in no time once we have passed December 12. The market is also apt to give misleading signals and it is difficult to respond to the right ones when positioning portfolios for the year ahead.
:: Cathy Dixon is a partner at the Belfast office of Cunningham Coates Stockbrokers. This article does not constitute a recommendation to buy or sell investments and the value of any shares may fall as well as rise.