So What Happens Next?
Q4 saw the markets finally capitulate to the steady buildup of bad news and general causes for concern, and a 10 year bull run in equities was brought to a halt. December was a particularly challenging month as virtually all asset classes fell in value. As usual, the retreat in markets is down to a number of factors rather than a single cause – US interest rate increases, slowing corporate earnings growth, trade issues with China and the winding down of QE all had their contribution to make. These added to the fact that asset prices were simply looking expensive by historical standards.
And the big question now of course is what does happen next? Looking into 2019, are we on the one hand looking at a scenario of continued bouts of volatility with markets steadily (or unsteadily) trending down? Or on the other will investors start to take advantage of value buying opportunities resulting from the market falls leading to a significant degree of stability returning to markets as the year goes on? Both of these scenarios look very possible at the moment and investors would be best advised to take a wait and see attitude fora while yet.
The positive third quarter in equity markets was completely swept aside in the fourth as a whole coop of chickens came home to roost. With the US down by almost 14%, no equity market escaped. The negative perception being taken of the UK is perhaps not properly reflected in the major stock market indices given that most constituents of the FTSE 100 for example are large global corporations for whom Brexit may not be that big a deal. Ireland, on the other hand has felt the full force of Brexit negativity as international investors have sold Irish stocks heavily causing the market to fall by more than 20% over the year. Continental Europe has not escaped either as a disappointingly sluggish economy and a winding down of QE have impacted negatively on investor sentiment.
Q4 2018 (in euro terms) Full Year 2018 (in euro terms)
US -13.5%* -0.2%*
UK -9.6%* -8.8%*
Europe -11.4%* -11.3%*
Japan -13.7%* – 5.8%*
Ireland -15.9%* -20.8%*
China -6.7%* -10.6%*
* Source: Financial Express Analytics
Given the ongoing volatility and the hugely uncertain outlook, we are sticking to our mantra to clients in times like this – focus on income. Income is the ultimate determinant of longer term value in investment markets. In addition, clients should not be afraid to hold cash over the coming months both as a protection and to potentially take advantage of buying opportunities in equities over the coming months.
Listed property vehicles have fallen in price along with everything else in recent months. This has been particularly extreme in the UK as overseas investors take a very negative view of UK economic prospects post Brexit. Underlying property asset values,however, have held up well in most other markets. Germany and many other continental European markets remain relatively buoyant for real estate assets. Primarily because of the income benefits, we continue to see property as a core long term investment for investors and we continue to recommend that client stake positions in appropriate vehicles. Our preference is for liquid,diversified, lowly geared investment structures which distribute the bulk of the rental income they receive.
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.
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.