Investment Comment February 2015

The biggest financial headlines in the last month came out of Europe, as the ECB launched its much-anticipated quantitative easing programme on 22 January. At €60 billon per month, the QE package was substantially larger than markets had anticipated. In expectation and as a result of this easing measure, European markets performed very strongly in January (the Eurofirst 300 was up 6.54% in January).

The Greek elections resulted in a government mainly composed of Syriza, the left-wing, anti-austerity party. The election of Syriza was previously expected by many commentators to cause market consternation, however European markets have so far shrugged off the event, with negative market consequences being confined to Greece alone.

The Swiss National Bank, which had been buying euros in order to maintain a price floor in the EUR-CHF, abandoned the currency peg in a surprise move. This led to a dramatic weakening of the euro and strengthening of the Swiss franc as the news broke; prices now appear to have stabilised.

In the UK, the Top UK 100 Companies has also performed strongly in January (up 2.87%). The release of inflation figures required Mark Carney (Governor of the Bank of England) to write to the Chancellor after inflation fell below 1%. This led to markets pushing the expectation for rate rises further into the future. Rates are now expected to rise no earlier than Q3 2015. Pre-election jockeying has begun in earnest, and political uncertainty might deter businesses from investing. However, lower oil prices will likely give a substantial boost to consumer confidence.

Considering UK companies, Shire bought US firm NPS. Their drug Natpara was subsequently approved by the FDA in the US, with European approval pending. Supermarkets were threatened by regulatory action over ongoing concerns that they are using their buying power to exploit small suppliers. Qatar Airways bought a 10% stake in International Airlines Group (formerly British Airways). Fenner has, through its subsidiary Fenner Drives, bought the US company Charter Medical, a manufacturer of medical devices. IPOs include the John Laing business focusing on infrastructure investment, expected to raise £130 million.

US markets underperformed in January, and were in fact down over the course of the month. President Obama delivered the State of the Union address and whilst there was much which was controversial in American politics, it had little effect on the markets, possibly as the focus at the time of the speech remained on Europe and QE. The US dollar continued to strengthen and, especially in light of a weakening euro, there are concerns this could harm US exports. However, the domestic economic situation in the US remains positive with US GDP growth expected to be strong over 2015. The S&P500 is likely to benefit.

In Japan, the annual wage negotiations known as ‘shuntō’ got underway. Prime Minister Abe, continuing to pursue inflation, encouraged companies to award above inflation increases to employees. However, companies expressed unease at this: negotiations continue. The Nikkei 225 was slightly up on the month.

Oil prices stabilised after their slide. While the change of leadership in Saudi Arabia, following the death of King Abdullah, did not herald a change in policy from the oil producer, it seems that prices may have naturally found a floor around $50 per barrel, having oscillated around that price this month.

Overall, it is likely, in our view, that a compromise will be reached with Greece, and the massive QE announced in Europe is likely to be beneficial to share prices. The effect of lower oil prices will be beneficial to consumers worldwide and should result in improved growth prospects.

Risk warnings
This document has been prepared based on our understanding of current UK law and HM Revenue and Customs practice, both of which may be the subject of change in the future. The opinions expressed herein are those of Cantab Asset Management Ltd and should not be construed as investment advice. Cantab Asset Management Ltd is authorised and regulated by the Financial Conduct Authority. As with all equity-based and bond-based investments, the value and the income therefrom can fall as well as rise and you may not get back all the money that you invested. The value of overseas securities will be influenced by the exchange rate used to convert these to sterling. Investments in stocks and shares should therefore be viewed as a medium to long-term investment. Past performance is not a guide to the future. It is important to note that in selecting ESG investments, a screening out process has taken place which eliminates many investments potentially providing good financial returns. By reducing the universe of possible investments, the investment performance of ESG portfolios might be less than that potentially produced by selecting from the larger unscreened universe.