Paul Wharton spoke at a lunch for our clients on 17 November, and said that 9-10% growth rates are continuing in China in India, but emerging market inflation rates show little sign of moderating. In the US, the Chicago PMI (Purchasing Managers Index) is over 60, so reasonably robust, and US manufacturing is well placed to benefit from an upturn in world trade. The outlook for Japan is mixed, and the yen continues to strengthen.
In the UK interest rates are likely to remain unchanged for two years. There is a great deal of uncertainty in the City, which is never good for the stock market. Equity markets are waiting for the starting gun, with a lot of pent-up demand that could drive the Top UK 100 Companies up 1000 points if a credible solution to the eurozone crisis is found. There has been a 30% devaluation of the pound since 2008, making exports much more competitive.
Blue-chip equities are increasingly seen as the safest place to invest, because corporate balance sheets are mostly strong and valuations are attractive. There is a high margin of safety in these types of businesses. There is a deep value opportunity in Europe. Once the dust settles there will be a once in a lifetime opportunity to invest in equities, in due course. In the mean time the volatility will continue, and they (DB) have decided to eliminate financials from their portfolios, and swap-based ETFs, because of the risks. They are buying ultra-long dated gilts
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.
