The past quarter was more positive for equity markets as investor concerns about global events ameliorated somewhat. Mr Trump continues to be a major source of material for markets to feed on, providing not just causes for concern but also reasons to cheer. On the ‘causes for concern’ side of the balance sheet we have the trade issues with China along with the general anti-globalism stance while on the ‘reasons to be cheerful’ side are the recent NAFTA Agreement and a growing view that putting pressure on China to open up might just be a good thing for world business.
Of course there is plenty going on which has nothing at all to do with Trump. In Europe, we have the slow traffic pile-up which is Brexit and the very tricky politico-economic picture developing in Italy. In Japan, on the other hand, the picture is improving and investors are increasingly buying into the ‘return to growth’ story as Abenomics finally begins to bear fruit.
Lastly, emerging markets are also giving us plenty to think about with the economic crisis in Turkey being rapidly followed by an even worse crisis in Argentina leading to the largest IMF bailout ever assembled.
The third quarter was a good period for equity markets generally, with a couple of notable exceptions. The US grew by almost 8% over the quarter, with Japan doing even better and turned in growth of almost 9%. China was down as were many of the European markets. But Ireland was certainly a standout market, falling by more than 6% over the three months, While this fall appeared to be down to a range of factors, one cannot help feeling that international investors may be increasingly seeing Ireland as a major potential casualty of a bad Brexit.
Q3 2018 (in euro terms) YTD 2018 (in euro terms)
US +7.9%* +14.3%*
UK -0.5%* +0.9%*
Europe +0.4%* 0.0%*
Japan +8.8%* +7.7%*
Ireland -6.2%* -5.8%*
China -2.5%* -4.1%*
* Source: Financial Express Analytics
For the remainder of the year, the US China trade situation is likely to rumble on while the sharply increasing oil price may also play a part in equity market performance. Both these issues could have a dampening effect on emerging markets in particular. On the other hand, if the economic news from the US continues on a positive trend it will provide support for markets. We are advising clients to maintain a focus on income and diversification and when committing new funds to equities, to do so on a phased basis.
Among the major asset classes, property remains our favoured choice and should in our view represent a material component of all long term investment portfolios (see chart below showing relative performances of property vs. equities vs. Bonds over 25 years in the UK).
We recently launched our Liquid Property Strategy which incorporates three selected funds all of which pay an annual income, are tradeable daily and between them offer a highly diversified exposure to global property. However, the property market can give rise to shorter term investments of an opportunistic nature. The residential market in greater Dublin, and in certain other urban locations in Ireland, currently represents one such opportunity and Harvest has partnered with a number of selected developers to bring residential development investments to clients. However, these are not low risk and should never be viewed as core investments.
Increases in interest rates in Europe still look to be quite a long way off. As a result, cash should not be seen as a core long term investment for any pension fund and other low risk income producing alternatives should be considered. Harvest has constructed a Cash Alternative Strategy which will give investors an annual return of 3-4% without involving high risk. Clients should see this as part of the solution for the cash element of their fund.
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 your Harvest Financial Services Client Advisor or call us on 01 2375500 or email firstname.lastname@example.org.