Strong Q1 but…… Following a sharp downturn in the final quarter of 2018, markets have recovered well over the first three months of this year as buyers took advantage of perceived opportunities to pick up value. The turnaround in sentiment was helped by a number of factors including increased optimism about the global economy, lessening fears about a US recession and the prospect of interest rates remaining low for longer. Most asset classes, including equities, bonds and real estate benefited from the more positive tone in markets and delivered positive outturns over the period.
We are not sanguine however, as there are plenty of potential catalysts to trigger another market correction. While it has abated temporarily, the US China trade situation has still not settled. Negative economic news from the US is also likely to be taken badly by markets. And then we have Brexit. It would probably have been impossible two years ago, when Article 50 was triggered, to imagine a worse scenario than the one we currently see playing out in the UK. And there is little doubt that a hard Brexit would not be taken well by markets. On balance, we continue to be of the view that further bouts of volatility over the remainder of the year are more likely than not.
As can be clearly seen
from the table below, all of the major equity markets surged strongly over the
first three months of the year. In euro terms, China led the way as both its
stock market and its currency made positive gains. However, most markets (with
the exception of Ireland) neutralised their Q4 losses.
Q1 2019 (in euro terms) Full Year 2018 (in euro terms)
US +15.6%* -0.2%*
UK +14.0%* -8.8%*
Europe +12.3%* -11.3%*
Japan +7.4%* -5.8%*
Ireland +12.9%* -20.8%*
China +17.5%* -10.6%*
* Source: Financial Express Analytics
We are still more inclined to be cautious rather than bullish over the short term. That said, it is certainly not a time to avoid equities altogether. Valuations are not out of line and there is still value for the long term investor. We do advise phasing any new investments into the markets to help dilute any short term market corrections and we also continue to encourage a focus on income as an indicator of underlying value.
Listed property stocks recovered along with everything else during Q1. Away from stock markets, underlying real estate assets in many developed markets (US, Europe, Ireland) remained steady although the UK continued to be weak as a result of Brexit concerns. The Harvest Liquid Property Strategy, incorporating three international and Irish funds offering both daily liquidity and income, has risen by more than 15% year to date and is currently yielding almost 5% per annum. We are maintaining our positive stance on property generally, both as a source of income and longer term value.
While cash should not be seen as a core long term asset, holding a position in cash over the shorter term may well be advisable. The Harvest Cash Alternative Strategy, comprised of three liquid low volatility funds, has returned 4% over the first quarter of the year.
As always, you should only consider the investment views contained in this update in the context of your own attitude to risk and how such choices might impact your asset allocation model. Should you wish to discuss your investment portfolio, please contact us on 01 2375500 or email firstname.lastname@example.org.