The World In A Week - It’s the Hope (and maybe the Earnings Expectations?) that Kills You
While the European Football Champions have now been comprehensively determined, albeit not in England’s favour, we had another week of seemingly placid market returns as they remain decidedly undecided about economic events and potential future outcomes. The MSCI All Country World Index was down -0.5% in GBP terms, while leading markets included the UK and the US. Chinese equities continued to sell off heavily, with MSCI China returning -4.7% for the week, dragging the wider Emerging Market index lower.
China has been giving investors cause for concern for some weeks now. Economic activity in the Middle Kingdom has been slowing, as illustrated by the closely watched “credit impulse” which peaked last year and has been declining for the year to date. This measures public and private credit creation and tends to foreshadow economic activity. As a response to this, last week the People’s Bank of China cut interest rates in order to inject more stimulus into the economy. China’s economic health is very important to the global reflation narrative, and the YOU Investment team together with other investors will be monitoring developments here closely.
Another key focus for markets has been the start of Q2 earnings season in the US, that kicks off this week as the large US banks have announced. The largest US companies are expected to reveal year-on-year earnings per share growth of +63%, which is the largest jump since the emergence from the depths of the 2008 crisis. What is different this time is that the S&P index of large US stocks is at an all-time-high and is trading on a very expensive multiple of 31x earnings. Should these lofty earnings expectations disappoint, there is potential for a market upset.
It has been widely documented that humans (i.e. investors) are more psychologically averse to dashed expectations and losses than they are to upside news, a feeling readers will no doubt be all too familiar with this morning.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 12th July 2021.
© 2021 YOU Asset Management. All rights reserved.
The World In A Week - US Dependence Day
Last week the US market closed at all-time highs and this could not have come at a better time, heading into the 4th of July weekend marking the 245th Independence Day. Last Friday saw US Payroll data beating analyst expectations significantly, as the US added 850,000 new positions in June, demonstrating a strong bounce back in the world’s largest economy. Compelling economic data resulted in the seventh straight day of trading that saw the S&P 500 close at a record, which is the longest streak since 1997.
The US accounts for 25% of global GDP, and this has risen from 21% over the last 10 years, becoming a more dominant market leader. Developments in technology integration and the semi-permanent shift to a digital age have underpinned this with the emergence of leading cloud-computing, e-commerce, and software companies. The MSCI World Index is also largely tilted towards the US and represents approximately 54% of the index. Easy access to capital has fuelled increased levels of borrowing which has produced numerous new zombie companies which only generate enough income to payback the interest on their borrowings. The number of zombie companies in the US has increased from 6% to 20% over the last 10 years. Ahead, there are numerous headwinds for the US which include the growing levels of debt the Federal Reserve is willing to take up, the emergence of China / emerging nations and, as we have seen of late, that markets are becoming more disciplined towards relative valuations. These all amount to numerous hurdles for the US to overcome.
Elsewhere, the UK reclaimed its status as Europe’s largest share-trading centre, reclaiming the title back from Amsterdam. This change in status is largely derived from the resumption of the UK trading in Swiss stocks which was reintroduced as the UK left the EU. According to CBOE Global Markets, London experienced an average of €8.9bn of share deals in June, compared to €8.8bn on Dutch exchanges, and has emerged as the dominant trading centre in Europe once again.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 5th July 2021.
© 2021 YOU Asset Management. All rights reserved.
The World In A Week - Building Bridges
Although considerably paired down from President Biden’s initial spending plan of $2.3 trillion, a proposed infrastructure deal of $579 billion was agreed with senators. It will focus on improving and building roads, bridges, railways, public transport, and broadband networks. This is all new spending and, when combined with the renewal of existing annual funding for infrastructure, the total commitment over the next eight years is $1.2 trillion.
This pushed US stocks to another record high by the end of last week with the strongest weekly performance since February. This was despite consumer inflation in the US hitting 3.4% for the past 12 months to the end of May. The rise in inflation was slightly below expectations and does marginally ease the pressure on the Federal Reserve’s outlook for interest rates, having surprised investors with their slightly more aggressive tone two weeks ago.
Unlike their counterparts across the Atlantic, the Bank of England delivered a modestly subdued report for their Monetary Policy Committee meeting last week. Commenting on the recent measures of inflation being stronger than expected, the Committee anticipates this to be transitory in nature and not develop into a factor that will cause a tightening in their monetary policy.
The balancing act for all policymakers around the world is to build a bridge, from the emergency conditions that were put in place last year, to more normalised conditions, without triggering a repeat of 2013’s taper tantrum.
Finally, last week marked the fifth anniversary of the Brexit referendum. Having only just left the trading agreement with the European Union at the end of January this year, and with the muddling effects of the pandemic, it is still too early to judge whether the UK is in a better or worse position. Public opinion has remained constant, with very few Britons having changed their view of Brexit over the past half decade, leaving the pro- and anti- Brexit camps closely matched. What is clearer though is the need for the Government to rebuild relationships with our trading partners around the globe, as well as with the UK electorate.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 28th June 2021.
© 2021 YOU Asset Management. All rights reserved.
Beaufort Investment rebrands to YOU Asset Management Limited
‘Inspired by our clients’
PRESS RELEASE
Beaufort Investment rebrands to YOU Asset Management Limited
17 June 2021
Leading discretionary fund manager Beaufort Investment has rebranded to YOU Asset Management Limited (YOU), marking the next stage of its development as a dedicated investment management business.
The rebrand is designed to provide the company with its own distinct identity, with a clear focus on client interests and outcomes, whilst enabling it to grow and provide a broader range of clients with access to its proven investment solutions.
While the firm’s name and visual identity will change, it retains its full team and product range, operating to the same high standards that clients are used to.
Derrick Dunne, CEO, commented: “Our new name was inspired by our clients. We have always believed that if we operate in the best interests of our clients, and keep them as our focus, we will achieve a mutually beneficial outcome for all involved. We wanted to capture this emphasis and focus with our new name.”
“We are proud of our 16 years’ track record and the awards we have won in recent years. The investment landscape has truly transformed during this time, and we have continually evolved and expanded our proposition to help our clients access new opportunities to meet their ever-changing needs. We are all hugely excited by this next phase of development for our firm.”
YOU currently manages over £1.3bn in assets in a series of Active, Income, Enhanced Passive and Ethical Model Portfolios, as well as range of Multi-Asset Blend Funds.
The new brand goes live on 17 June with the new website address www.YOU-Asset.co.uk.
ENDS.
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The World In A Week - Inflated Expectations Return to Earth
Last week was a negative one for markets, as the MSCI All Country World Index of global stocks returned -2.3% in GBP terms.
The stand-out macroeconomic event of the week was the release of US inflation data on Wednesday, which revealed that prices were rising faster than market participants had anticipated. The increase in consumer price inflation came to +4.2% over the 12 months to April, the highest reading since 2008. This has been spurred on by monetary stimulus in the form of asset purchases from the Federal Reserve, the large fiscal stimulus planned by the Biden administration; as well as significant supply bottlenecks experienced by many raw material producers. This has seen the price of commodities such as lumber, copper, and corn rocket higher, albeit from quite a low base.
Increased inflation expectations, coupled with the higher interest rates which central banks may feel they now need to implement sooner, led to quite a substantial sell-off in the very frothy end of the US Tech sector (particularly the unprofitable parts, of which there are many). The NASDAQ Index of US Tech names was down -3.1% for the week, while retail favourites packed with loss-making “moonshot” stocks such as the ARK Disruptive Innovation ETF and the Baillie Gifford Global Discovery Fund lost -6.0% and -6.9% respectively. We continue to find the prices of assets in this end of the market to be disconnected from reality and increasingly unattractive in a potential rising inflation and interest rate environment. What was also amusing to observe, in a week where inflation exceeded expectations, was a -18.3% fall in the price of Bitcoin. The legion of online zealots touting the cryptocurrency as an inflation hedge may need to review their investment hypothesis.
Segments of the market, which we have been more constructive on, performed relatively better over the week. Global value stocks outperformed global growth names by +1.9%, while the value-orientated UK Equity market (which we are overweight) was the best performing global equity asset class for the week.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 17th May 2021.
The World In A Week - Shuffling of the Cards
Last week local elections took place across the UK that saw the Conservatives extend their dominance over Labour, making a net gain of twelve councils with Labour losing control of eight. Labour’s poor local election performance prompted Sir Keir Starmer to reshuffle his cabinet, with Anneliese Dodds being replaced by Rachel Reeves as Shadow Chancellor. However, there was more promising news for Labour as Sadiq Khan was successfully re-elected as London Mayor for another term.
Elsewhere, the Scottish National Party gained another seat but missed out on a total majority with Nicola Sturgeon stating that they will push forward with legislation to propose a second Scottish independence referendum, which is likely to take place in 2022 at the very earliest. Attention now turns towards Boris Johnson who is expected to set out several new bills aimed to support businesses post-Brexit, with the creation of eight new freeports in England and a bill set to boost housebuilding in northern regions.
With the UK demonstrating that the strong vaccine rollout can curb the transmission rate of the virus, with just over 17.5 million people having now been fully inoculated and hospital admission rates falling significantly, just over 51% of the UK has now received their first dose, which ranks second globally. Off the back of this, Boris Johnson is also set to approve the next stage of the reopening of the UK economy, which includes the reopening of most businesses, including pubs and restaurants serving indoors. Indoor sports and cinemas will also be allowed to reopen, as well as the ability to allow spectators to attend major sporting events.
The World In A Week - Freedom Day - the drive to move forward
The earnings season is finally upon us, and with it came a rise in volatility. The Vix Index, a measure of market volatility, crossed above 18, still relatively low levels in historic terms, but an increase nonetheless versus the last few weeks. All global indices finished the week in negative territory, with the UK’s FTSE 100 index retracing over -1.5%. In the fixed income market, despite stronger than expected CPI, PPI and retail sales, yields surprisingly contracted, continuing to puzzle both fixed income and equity market participants alike.
Though the earnings season in the US is still in its early stages, those businesses that reported have been reasonably positive. Of those circa 40 companies, 85% have beaten analyst forecasts on both Earnings per Share (EPS) and sales expectations. However, unless the reported numbers are particularly stellar, the market’s reaction becomes rather muted. Therefore, it would appear the market is really looking for knock-out numbers to get excited and had already priced in the expectation for the reporting season.
This is probably not surprising because, despite the slight pullback we have seen, many equity markets are trading at or near their all-time-highs and investors are looking to see whether the marginal demand coming through has been strong enough to offset the marginal costs of re-opening. Economic trends and the consumer do appear to be in good shape. After the last 18 months we have had to endure, it is a fair assumption to say people want to get back to some sort of normality, but we cannot be too blasé about where we are at in the fight against the Coronavirus.
The infection numbers remain high in certain parts of the US, and in the UK we have seen a marked pick up. In other areas such as South Africa, the World Health Organisation (WHO) has warned about a surge of infections after days of riots and looting, sparked by the jailing of former President Jacob Zuma, and in Singapore and Australia stark rises in cases have been reported.
Today is dubbed “Freedom Day” in the UK, when the UK Government seeks to end all legal, social and economic restrictions imposed to mitigate the effects of the COVID-19 pandemic. Let us hope this proves the right move to have taken.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 19th July 2021.
© 2021 YOU Asset Management. All rights reserved.