The World In A Week - Will Markets Catch A Cold?
Cases of the Covid-19, otherwise known as the Coronavirus, spiked last week, although we note that this is due to the inclusion of reclassified cases. On a positive note, laboratory confirmed cases were lower, which suggests that the disease is spreading at a slower rate, although the death toll has now exceeded that of SARS. The economic impact of the virus has been mixed thus far, but we believe it will have long-reaching, knock-on effects to the greater Asian region. It is thought that the People's Bank of China (PBoC) are likely to provide liquidity, to ease funding conditions in Chinese money markets in an effort to tackle downside risk posed by the virus and that further measures to support the economy could follow.
Leading into a long weekend for US citizens, who will be celebrating President's Day, US economic data remained robust. Labour market indicators, especially workers who are quitting for new jobs and small business optimism, were particularly positive. January retail sales rose in line with expectations of 0.3%, this was mostly driven by online and other non-store sales. Earnings also continue to be strong; of 80% of S&P 500 companies that reported in December 2019, 76% beat earnings expectations, which is in line with the long-term trend, suggesting the economy is in rude health.
In the UK, the 'Boris Effect' continues to be felt; Chancellor Sajid Javid resigned from the Cabinet following Boris' request to sack all of his advisors, a request that Javid felt was a move too far. It has been widely publicised that there have been tensions between Javid, and Boris's top adviser, Cummings, who wanted more control over economic policy and spending in the last few months. Javid's departure made way for the appointment of Rishi Sunak who has a tall task ahead; with the Budget due to take place on 11th March, it is questionable if this will go ahead.
Why Financial Planning Is Important For Generation X
If you're part of Generation X, it's the perfect time to start planning your finances to ensure you're on track for meeting goals in the short and long term.
Generation X is likely to be facing big life and financial decisions. Yet, only a small portion is working with a financial adviser to ensure their future is secure.
A nationwide study found that just 8% of those aged between 39 and 54 has spoken with an independent financial adviser in the last year. This is despite many within this age group approaching financial milestones. If you've been putting off getting to grips with your financial future, it's not too late.
Setting out your life goals
The first thing to do is think about what your life goals are in the short, medium and long term.
These goals should be the driving force behind your financial plan. Whilst you're still working, it can seem like retirement or planning to help children get on the property ladder is a long way off, but these long-term goals are just as important as the ones just around the corner. By setting them out now, you're more likely to achieve them.
Remember, the goals you set out now aren't set in stone. You may simply change your mind or factors outside your control may force you to evaluate. Regularly going back to your aspirations, and how you will achieve them, is just as crucial as the first step.
- Making the most of your earnings
As you reach your 40s and 50s, your income is likely to be higher than it was in the past. So, how do you make the most of this?
Should you overpay on your mortgage? Or should you start building an investment portfolio? Perhaps, you should increase your pension contributions?
There's no single right answer here. Your decisions should come back to your lifestyle goals. However, taking steps to understand the long-term implications of the financial decisions you make now can help you pick the right path for your aspirations and current financial situation. For some, reducing mortgage debt will help them free up their income in later life in order to retire early. For others, it will make more sense to invest their capital to build up a flexible income in the future.
- Planning for retirement
According to the research the average Generation X worker has £159,837 in their pensions and contributes just over £200 per month.
Whilst retirement may still seem a long way off, it pays to start thinking about the lifestyle you want and whether it's achievable based on current pension projections. Just 20% of Generation X plan to access their pension within the next five years. The findings suggest that most have an opportunity to fill potential gaps should they find aspirations and reality aren't aligned. The sooner you know there's a gap in your pension, the greater the chance you have to bridge it.
Worryingly, 48% of women and 34% of men had never heard of Pension Freedoms, and 30% have heard of them but don't understand what they mean for retirement. These pension reforms were brought in five years ago and give you far more freedom in how you access your pensions, but also bring additional responsibility too.
It's important you understand your options; what is right for someone else may not be appropriate for you. The decisions you make at retirement could affect the rest of your life. Please contact us to understand how your pensions savings can be used to create a retirement income.
- Providing for the next generation
At this stage in your life, you may be considering how you can financially help the next generation. You may have children or even grandchildren that you want to provide for.
Balancing your financial needs with your desire to give a helping hand can be difficult but it is possible to balance the two. For example, you may want to pay for school fees out of your regular income or start building up a nest egg that can be used for a first home deposit in the future. Setting out these goals can help you achieve them. The best course of action will depend on many factors; including your aspirations for helping loved ones but this is an area where we can provide support. We take the time to understand what your hopes are, so we can set out the right path for you. When planning for the next generation this could include:
- Contributing to a Junior ISA
- Gifting lump sums
- Providing gifts from your income
- Writing a will and estate planning
If you're part of Generation X and would like to review your finances with a financial planner, please get in touch with us. We'll help you see how the steps you're taking now will impact your future security and ability to achieve goals.
Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefit available. Your pension income could also be affected by the interest rates at the time you take your benefits.
The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
4 Ways You Can Efficiently Pass Wealth On To The Next Generation
If you plan to pass wealth on to children or grandchildren, how to do so efficiently should be a consideration. It could mean more ends up in the hands of your loved ones.
Do you intend to pass on wealth to loved ones? If you want to help children and grandchildren become more financially secure, you need to consider more than just the sum you'll be giving them. Tax rules may mean you need to think carefully about how you do so, as well as the impact it will have on you.
If you want to pass on a portion of your wealth to loved ones, you essentially have two options: do it during your lifetime or as an inheritance.
There are pros and cons to both these options. Passing on your wealth now means you get to see the impact the money has and, depending on the circumstances of your loved ones, it may have a bigger positive effect on their life. However, on the other hand, it may diminish their inheritance and you'll need to think carefully about how it affects your wealth over the long term.
Whatever option you choose, efficiency should be considered. After all, you want as much of your gift to go to your loved ones.
- Use your gifting allowance
When you give a gift, you may think it's considered out of your estate for Inheritance Tax purposes. However, this isn't always the case. Some gifts may still be considered part of your estate for up to seven years and could be liable for tax as a result.
Crucially, there are some exemptions that mean gifts are immediately outside of your estate for Inheritance Tax purposes. This includes the annual gifting allowance of £3,000. If you want to give money to loved ones now, you should make use of this. It can be carried forward by a year, so if you didn't use your allowance last tax year, you could efficiently give £6,000 this year.
- Write a will
If you're hoping to leave an inheritance to your loved ones, writing a will should be the first thing you do. Even if you already have a will in place, it may be worth reviewing it.
Having a valid will is the only way to ensure that your wishes are carried out. Despite this, more than half of British adults have not made a will. Not doing so would mean your assets are distributed according to Intestate Rules, which could be vastly different from your wishes. A will may also present an opportunity to mitigate tax.
Ideally, you should review your will every five years and after big life events, such as new grandchildren arriving, marriage or divorce.
- Use a trust
Another way to potentially take a portion of your wealth out of your estate is through using a trust. A trust can allow you to pass on assets or money to beneficiaries with one or more people, or even a company taking control. It's an arrangement that can be particularly useful if you want to pass gifts on to children or vulnerable people.
There are several different types of trust and some are subject to their own tax regimes, so you need to fully explore your options before deciding to set up a trust.
Trusts can be complicated and once you've made a decision, it may be irreversible. As a result, it's important that you seek both financial and legal advice before proceeding. Please contact us to discuss if using a trust is an option that is appropriate for you.
- Remember your pension
Pensions can provide you with an income throughout retirement. But they may also present you with a chance to pass wealth to loved ones after you've passed away.
Money taken out of your pension will be considered part of your estate and, therefore, potentially liable for Inheritance Tax. However, money that remains in your pension can be passed on efficiently.
If you die before the age of 75, the money within your pension will not be taxed at all if it's accessed within two years. After the age of 75, your beneficiary will be charged Income Tax, which could be far less than Inheritance Tax depending on their personal income.
If you want to leave your pension to a loved one, it's important to note your pension doesn't form part of your estate. As a result, it won't be covered by your will. You should contact your pension provider to complete an 'expression of wishes' to let them know what you'd like to happen.
These four ways to pass money on efficiently aren't the only options. Depending on your circumstances and goals, there may be other options that are more suitable. Please contact us to discuss your personal needs.
What impact will the gift have on you?
Whilst passing on wealth, tax efficiency is important, it's also crucial that you measure the impact it could have on your plans and future. For instance, would taking a lump sum out of your wealth now to give as a gift potentially leave you financially vulnerable in later years? Would a planned inheritance be at risk if you were to need long-term care?
You can't know what's around the corner but by making gifting part of your financial plan, you can help ensure everything stays on track. Please contact us to discuss how you'd like to financially support loved ones. We'll help build a financial plan that reflects this, as well as your other goals.
Please note: The Financial Conduct Authority (FCA) does not regulate will writing, estate or tax planning.
The World In A Week - Policy Preferences
Last week saw a reversal of fortune regarding market performance as global equities shrugged off concerns with MSCI AWCI rising +4.6% in GBP terms. This was primarily driven by the Chinese and US stock markets (up +6.5% and +5.1% respectively) and rests on the assumption that the Coronavirus outbreak can be contained. A secondary-order assumption stemming from the Coronavirus outbreak is that any economic slowdown will be countered with easier monetary policy from the world's central banks, namely the People's Bank of China and the Federal Reserve in the US.
This reversal in sentiment was also observed in the fixed income markets; high yield bonds rallied +0.60% while high quality bonds lost -0.12% - both in GBP hedged terms.
While the assumption that central banks will provide ever-increasing degrees of monetary stimulus to calm nervous markets has worked well as an investment strategy since the financial crisis, signs are appearing that this relationship could come to an end. Negative interest rates are being used in an attempt to stimulate growth in the Eurozone, Japan, Denmark, Switzerland and Hungary. Thus far the success of this experiment has left much to be desired, and the efficacy of negative rates is now being called into question by many. In December 2019, the Swedish central bank, the Riksbank, decided to abandon the negative interest rate experiment and raised rates to 0%.
The ineffectiveness of monetary policy to bolster further economic growth has led many market participants advocating a pivot to fiscal policy to pick up the slack. Governments in the UK and Europe seem to be gradually moving to take advantage of low interest rates for infrastructure spending. In addition, left wing economic policy is coming more into fashion around the globe, Bernie Sanders is leading the polls in the democratic primaries and over the weekend the Irish electorate returned Sinn Fein as the largest party in a general election. We continue closely to monitor policy makers preferences for economic stimulus and how markets will react.
The World In A Week - Love Changes Everything?
Today we could have written about the United Kingdom no longer being part of the European Union, as Friday saw us exit, but without any clarity around the trade relationship for the future. This is the start of the long journey towards clarity around how we will interact with Europe going forward.
We could have written about Mark Carney's last Monetary Policy Committee as governor of the Bank of England. The expectation for an interest rate cut had surged during January, however the committee voted 7:2 to keep UK interest rates at 0.75%. Mr. Carney officially stands down on 15th March after extending his governorship twice in order to see the UK leave the EU in an orderly manner.
What we are writing about is the Coronavirus and the concerns that this raises with short-term sentiment in the financial markets. Fear is the biggest economic threat and fear spreads more quickly when carried on the wings of social media; Google searches for 'Coronavirus' have risen sharply over the past week. It seems fear changes everything.
Fear changes consumers' economic behaviour and in turn changes policy makers' responses. In response to help contain the spread of the virus, China extended the Lunar New Year holiday to three days, with financial markets opening today. This has knock on effects for global supply chains and even a short disruption to global manufacturing should not be ignored. Companies should have enough inventory, but if Chinese companies are closed long enough, European and US production may suffer a lack of parts. We would expect sentiment surveys to worsen on the back of this.
The World Health Organisation has now declared the Coronavirus outbreak a Public Health Emergency of International Concern. We believe that international measures to stop the spread of the virus will ultimately prove effective and there are early signs that the rate of increase in the number of new cases is slowing. It would appear the world was much more prepared for this type of outbreak than it was in 2003, with the Chinese government being pre-emptive and transparent, especially in quarantining major cities.
As we wrote last week, action will be compared to the SARS outbreak in 2003 and the blueprint is this current crisis could last between three and six months. We must keep in mind that this period of apprehension will eventually end, but in the meantime, we will probably face more bad news as media sources continue to use more emotive headlines, which will likely impact markets in the short-term.
The World In A Week - The Year Of The Rat
An eventful week that saw the continued spread of the Coronavirus in China, the opening arguments of Trump's impeachment trial and the 51st World Economic Forum in Davos.
The World Health Organisation have called for emergency action in China following 830 confirmed cases with 41 deaths reported so far. The Chinese city of Wuhan, home to some 11 million people has been inundated with new patients seeking treatment. A completely new hospital is set to be completed in the next 6 days and will house 1000 beds. This follows similar action taken in 2003 following the SARS virus outbreak. The timing is far from ideal as China celebrated its New Year on the 25th January and is in a period of stagnated growth. Economic activity is expected to drop significantly with reduced worker mobility and spending power, following the travel ban that encompasses 12 cities, affecting 35 million people. There has been a large-scale demand for surgical masks and gloves with more than 80 million masks sold. China's Tencent has also cancelled the firm's annual bonus release which gives employees the chance to meet chief executive Ma Huateng amid enhanced virus concerns.
The most recent chapter in the impeachment trial sees President Trump's legal team present their case against his removal from power. The session was very brief with the main statements set for this upcoming week. However, it was clear that further evidence is needed to support any case for the removal of Trump, and this would certainly undermine the US political vote as the presidential election race gathers speed. Two-thirds vote of the Senate are required to remove the President from office, an event that has never happened in US Politics.
Climate crisis was once again the topic of discussion at the World Economic Forum in the ski resort of Davos, Switzerland. President Trump's comments again sparked debate as he compared Tesla CEO, Elon Musk, to the great Thomas Edison. This follows the significant up-surge of Tesla shares which have increased by just over $300 in the last 3 months. Trump was also quick to boast his role in accelerating economic growth, with unemployment at its lowest rate for 50 years. Most notably, Greta Thunberg echoed her climate crisis call by encouraging global leaders to act immediately, further emphasised by US Vice President Al Gore, who compared the global crisis to the 9/11 event.
The World In A Week - Waiting For The Turn
Although the year is still young, thus far into January markets have seen a broad continuation of the trends we observed in Q4 of 2019, and indeed for many of the last few years. US Equity outpaced other global markets by quite some margin, with the S&P 500 retuning +2.21% in Sterling terms; although this was aided by a mild weakening in the British Pound against the US Dollar. The Price/Earnings ratio for the S&P 500 now stands at 26x on a trailing 12-month basis, as calculated by the Wall Street Journal, that is very expensive indeed on this measure.
Global growth equities have continued to outperform value equities (+5.8% vs +2.6% for the month to date), as they have done in the aggregate since the financial crisis. Again, valuations are stretched to extremes - although we generally view stretched valuations as opportunities to add value rather than risks to be avoided. As a result, we maintain our overweight to Global Emerging Market Equity into the New Year as it offers considerably better value than other equity markets.
On the Fixed Income side, we saw the rally in junk (or high yield) bonds extend from December into January as Global High Yield Debt rallied +0.9% in GBP Hedged terms last week. We are deeply sceptical that there is any opportunity to be had in high yield at current prices and maintain our underweight in favour of Investment Grade Credit. Emerging Market Local Currency Debt, which was one of our most successful positions last year, has pulled back marginally this month (-0.30%) but we remain bullish on the asset class in general and our Fund manager in particular.
On the macro side, we track the Composite Leading Indicators produced for each major economy by the OECD on a monthly basis. The latest data was released this morning and showed a moderate stabilisation in economic data across a range of developed and emerging economies. One among these was the UK, which is interesting in the context of a potential rate cut by the Bank of England. This would be highly premature in our opinion. Employment data is still robust, and while retail sales have been poor in aggregate, most of this is due to business models on the high street being disrupted rather than an underlying economic malaise.
We continue to remain focused on only taking risks for which we are adequately compensated, monitoring market developments for when trends might begin to turn and looking for tactical opportunities to add value to the portfolios.
6 Things The Mini-Bond Scandal Can Teach Investors
The Financial Conduct Authority has banned mass marketing for mini-bonds following a scandal last year, but investors should still keep some key lessons in mind.
Thousands of investors have been sucked into putting their money into unsuitable mini-bond products following extensive advertising, particularly on social media. The Financial Conduct Authority (FCA) has now clamped down on the marketing of such products following a scandal. But many are likely to lose their money.
What is a mini-bond?
A mini-bond is effectively an IOU where you lend money directly to businesses, receiving regular interest payments over the term of the bond. However, the money you make back is based entirely on the firms issuing them and not going bust. As a result, they aren't suitable for most investors. If the business collapses, you're not guaranteed to receive your money back. Mini-bonds are not normally protected under the Financial Service Compensation Scheme (FSCS) either.
The London Capital & Finance scandal highlighted this.
Around 11,500 bondholders poured £237 million into London Capital & Finance after being promised returns of 6.5% to 8%. The investment opportunity was advertised extensively, including on social media platforms. This meant it reached a wide range of investors, including those it may not be suitable for. The firm collapsed in January 2019 and investors could lose all their money tied up in the mini-bonds. For some investors, it could mean losing their life savings or having to adjust plans significantly.
Coming into force on 1 January 2020 and lasting for 12 months, the FCA has banned mass marketing of speculative mini-bonds to retail customers. Over the course of the year, the regulator will consult on making the ban permanent.
Andrew Bailey, Chief Executive of the FCA, said: We remain concerned at the scope for promotion of mini-bonds to retail investors who do not have the experience to assess and manage the risk involved. The risk is heightened by the arrival of the ISA season at the end of the tax year, since it's quite common for mini-bonds to have ISA status, or to claim such even though they do not have the status.
As a result, speculative mini-bonds can only be promoted to investors that firms know are sophisticated or high net worth.
Learning from the mini-bond scandal
The FCA ban aims to protect investors, but some lessons can be learnt from the mini-bond scandal too.
- Make sure you understand your investments
Investments can be confusing, but you should ensure you understand where your money is going before parting with your cash. Taking some time to do your research can give you more confidence in your decision and reduce the risk of choosing products that aren't right for you. If you'd like to discuss an investment opportunity and how it fits into your plans, you can contact us.
- Ensure investments are authorised and regulated
Investments that are regulated and authorised by the FCA can provide you with protection. The regulation around mini-bonds is much less stringent than for listed bonds. What's more, a business does not have to be regulated by the FCA to issue mini-bonds. As a result, they aren't suitable for most retail investors. Even when a business claims to have regulations, it's worth checking this is true and understanding what protection this offers you, if any.
- Make sure investments fit your risk profile
Mini-bonds are considered a high-risk investment. That means there's a greater chance your returns could be less than your initial investment or that you lose all your money. Your risk profile should consider a range of different areas, such as your capacity for loss, investment goals and other assets. In many cases, the risk associated with mini-bonds would be too high for typical investors.
- Be mindful of scams
Financial scams are rife, and the mini-bond scandal highlighted why it's important to carry out due diligence. Some mini-bonds falsely claimed to have ISA status, making them more tax efficient. This could mean some investors face unexpected tax charges. However, this claim could also lead investors into making a decision that's wrong for them. ISAs are commonly used products and considered 'safe', in contrast to mini-bonds.
- Don't rush into making decisions
When you see an ad with an enticing offer, it's easy to react straight away. However, carefully considered decisions are far more appropriate than impulse ones when it comes to investing. Don't rush into making investment decisions. Instead, take some time to think about what your options are, and which is most appropriate for you.
- Be realistic about investment performance
With some money bonds claiming to be low risk whilst offering returns of 8%, it's easy to see why retail investors were tempted. But investments with higher potential returns will carry higher levels of risk too. When assessing investment opportunities, be realistic. Here, the old saying rings true: if it sounds too good to be true, it probably is.
Please contact us if you have any questions or concerns about your investment portfolio. Our goal is to ensure each of our clients is comfortable with their investments, and wider financial plan, including the level of risk involved.
Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
DIY Money Management Could Cost You In The Long Run
People taking a DIY approach to their finances could find they end up losing money. Research has found that despite shunning financial advice, many aren't confident when it comes to making complex decisions.
Whilst it can be tempting to save and manage money by taking a DIY approach to finances, it could end up costing you money. Research suggests that eight in ten people overestimate their own financial capability and could be making decisions that aren't right for them as a result.
Failing to seek financial advice when it could prove valuable may not be an issue for you. But it could be a mistake that your children and grandchildren are making. Knowing when financial advice could be beneficial can be difficult to understand, especially if you haven't received advice in the past. Understanding how financial advice works and when it's useful is important.
According to Aegon, taking a DIY approach to money matters costs savers in the long run. The research found that the most common reason for people not asking for expert help is self-belief in their own ability. However, whilst many were confident when dealing with savings and general insurance products, just one in ten were sure of their ability to make more complex decisions about pensions and investments. When you consider that both these areas are long term and can have a significant impact on future lifestyle, it's crucial that savers feel confident in the decisions they're making.
For example, just 29% of those that haven't sought financial advice are confident in making a decision about when they will retire. This compares to 54% of advised individuals.
Steve Cameron, Pensions Director at Aegon, commented: Managing your own finances can be rewarding, but there's a lot to consider and it's worth remembering that the financial decisions you make can have lasting implications for the rest of your life. That's why working with a financial adviser often makes huge sense.
Financial planning isn't a one-size-fits-all approach. It's designed around the individual to meet their personal needs and circumstances and can be invaluable in providing peace of mind, helping individuals make the right choices for their future wealth. There's a real danger that poor decisions can mean plans unravel, putting people's financial future in jeopardy. Having a professional by your side helps make sense of your options, many of which you might not know you even had.
The financial benefit of advice
Whilst the above focuses on how confident people are about their financial decisions, past research has highlighted the monetary impact of not seeking advice too.
The International Longevity Centre has tracked how asset values have changed for individuals receiving advice and those opting for a DIY approach. The findings highlight how financial advice can help wealth grow:
- Whilst not having enough wealth is often a common reason for not seeking financial advice, the research indicates it can have an even greater impact. The individuals defined as 'just getting by' saw a 24% boost to their pension wealth compared to the 11% experienced by 'affluent' individuals
- Building an ongoing relationship with a financial adviser was also found to be beneficial; those that received advice at both points in the analysis had nearly 50% higher average pension wealth than those only advised at the start
When can financial advice help you?
So, when should you seek financial advice? The International Longevity Centre report indicates that there is a benefit for working with a financial adviser on an ongoing basis. However, there are points in your life when one-off financial advice can be invaluable. This will, of course, depend on your personal circumstance, but could include:
- At retirement, you may have many financial decisions to make that will affect the rest of your life. Working with a financial adviser can help you understand what your options are and the income you can expect throughout retirement.
- Estate planning can be complex. Part of this will include understanding your current wealth, how it will change, and how this can be distributed among loved ones. It may also include taking steps to reduce Inheritance Tax if this is a concern.
- Following children, you may want to take steps to ensure you can provide financial support in the future. This may include supporting them through university or a deposit to get on the property ladder. Laying out plans and choosing the right products soon rather than later can help.
- After a divorce, your priorities and goals may have shifted significantly. Taking financial advice at this point gives you a chance to reassess your current situation and whether you're on track to achieve the future you want.
If you'd like to understand how financial advice could help your loved ones, whether on an ongoing basis or as a one-off, please contact us. We'd be happy to discuss your circumstances and where we can add value to your life.
Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
The World In A Week - Beware Greeks Bearing Letters
Written by Cormac Nevin.
Last week markets had a placid start, until Friday, when fears about the discovery of what was dubbed the “Omicron variant” of COVID-19 descended upon markets like a flock of thanksgiving turkeys. The MSCI All Country World Index of global equities dropped -2.4% in GBP terms on Friday, to end the week down -1.9%. Global Bonds, as measured by the Blomberg Global Aggregate Index, were up +0.1% GBP Hedged.
Omicron is the 15th letter of the Greek alphabet and, in a delicious irony, the sharp market selloff on Friday was exacerbated by the third letter of the Greek alphabet; Gamma. This is used to describe the phenomenon resulting from the widespread use of options to make highly leveraged bets on single stock names, particularly by retail traders on platforms like Robinhood. This causes a feedback loop whereby selling begets more selling by dealers and can result in sharp plunges like that which we have witnessed. The US Equity market is currently dominated by this activity, which explains much of the parabolic upside moves in names like Tesla and gives us slight cause for concern about having too much exposure to US Equities.
Events such as last Friday reinforce our conviction in our neutral equity positioning and diversified approach. MSCI Japan was down only -0.2% on Friday, as European and US markets sank – illustrating the opportunities various markets provide. While it is likely too early to say for sure, the Omicron selloff appears to be reversing. Countries are much better equipped to deal with new variants of COVID-19 than they were in the first wave, illustrated by the UK’s quick closure of travel from Southern Africa. In addition, companies like Moderna are already using their mRNA technology to synthesise Omicron-specific vaccines.
Given stretched valuations and the implicit leverage in certain markets, we think events like Friday may become more frequent. It will also likely be even more challenging for markets once central banks stop providing liquidity to an arguably overheating economy. A flexible and diversified approach will remain critical.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 29th November 2021.
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