Hello and Happy New Year, this is just a short note to cover recent weeks and my thoughts for the first few months of 2019.
My mantra has always been ‘Protect the downside’, and so the changes we made last September to take some profit and boost cash have helped in the recent volatility. It gives some space and time to think about ‘what next’, and helps protect confidence whilst we deal with Brexit.
However markets are mainly driven by the global outlook and in particular USA and China. In the run up to Christmas, markets proved to be highly volatile, as ‘The Fed’ continued on their path of raising interest rates, combined with QT, Quantitative Tightening.
This is the gradual reversal of QE, Quantitative Easing, which we have had for the last ten years. Taking away this support is supposed to get the economy to normalise. However, in the short term it will cause some stress because it increases borrowing costs, and strains companies with higher debt. Despite the benefits of US tax cuts, this short term sentiment is then reflected in the stock market.
This normalisation is a gradual process, but it’s the speed of it that’s upset markets in the short term. This coupled with the US / China trade tensions have created unease and reasons to take profit.
In any global economy, it does not take long for any tariffs to come back and bite you. This is what’s playing out now with a slowing Chinese economy, which has looped back and is now hurting the US. We recently had an almost unheard of profit warning from Apple, citing a China slowdown. We expect the Trump administration to re-engage in talks with China and come to some resolution. If they did, this would lend some support to stock markets.
In terms of ‘The Fed’ reassessing the path of upward interest rates in 2019, well it’s still ‘watch this space’, but many are beginning to feel that they will likely reassess, based on a China slowdown. Again this would lend some support to stock markets. ‘The Fed’ now move to monthly press conferences, and so they will be able to better communicate their forward guidance.
Our strategy and thinking are shaped by the many conferences and fund manager round tables I attend each year, and the next one is coming up at the end of the week. Speed dating fund managers is no fun at all, but I will be picking their brains to assess what they really think, gauging their ‘fear factor’, and what I find most illuminating, ‘what they are doing with their own money, right now!’
Austyn Smith is a leading advocate of the ‘risk managed’ approach and ‘all weather’ investing, and has been featured as a Citywire ‘Cover Star’ in 2010, 2013 and 2017.
Following his work on risk reduction strategies, in 2011 he was recognized by Citywire Wealth Manager magazine as ‘Being in a position of some influence among your peer group, and likely to take a leading role in setting the investment agenda for UK Private Client managers.’
Austyn has recently contributed to leading publications by Citywire, and the Institute of Directors, and over the years has been quoted in the Sunday Times, Mail on Sunday, The Independent, and Bloomberg Markets.
With over 25 years wealth management experience, Austyn lives with his wife and children, Black Labrador and Springer, in Beaconsfield, Bucks.