Markets Settle Down… for now.
Following the strong recovery in Q1 of this year, stock markets largely settled down in the second quarter, while still continuing in positive territory. In terms of the larger geopolitical issues, while the Brexit scenario has worsened if anything, the US/China trade war position has improved, although the eventual outcome is still far from certain. In addition, it also appears that CE in Europe could be cranked up again.
But nothing can be taken for granted of course when it comes to the markets. Bonds and equities, the two predominant asset classes, are both on relative highs at the moment. Bond prices have risen on the growing acceptance that interest rates are more likely to ease than harden while equity markets are assuming a combination of lower interest rates and steady economic growth. However, when you consider that equity markets in general are flirting with (or already at) all time highs, that interest rates really cannot fall much further and that trade wars are unlikely to allow a steady economic growth scenario to take hold, markets have to be seen as vulnerable. As a result, we remain cautious and fully expect further bouts of volatility over the course of the year.
As the table below shows, most of the major equity markets edged ahead in the second quarter. Both China and the UK slipped back due to their own specific issues, although adverse currency moves also played a part. Europe was the strongest performing market over the period having been something of a laggard over the past eighteen months.
|Q2 2019 (in euro terms)||H1 2019(in euro terms)|
* 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, while on the high side, 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.
Real estate assets in most developed markets (US, Europe, Ireland) have edged upwards over the course of 2019 so far as investors continue to chase yield unavailable elsewhere. Harvest continues to be a fan of property exposures in most portfolios although our preference is for diversified liquid fund structures as opposed to direct investment in physical assets. The Harvest Liquid Property Strategy, incorporating three international and Irish funds offering both daily liquidity and income, has risen by more than 16% 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 of longer term value.
a number of years in the doldrums, gold
finally came to life, reflecting the underlying nervousness amongst certain investors about the short to
medium direction for markets. The gold
price has risen by just over 10% since January. This trend is more likely to
continue than not and clients should consider taking on a small exposure to
gold in their portfolios.
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 6.3% over the first half of 2019, well ahead of any cash deposit.
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.
Terry Devitt – Investment Director