Media Centre

5th October 2018
Market Commentary October 2018

market comm web oct 18

A market commentary I wrote eighteen months ago opened with the following statement: ‘Seeing as Donald Trump was inaugurated as the 45th president of the United States and Theresa May invoked Article 50 of the Lisbon Treaty, markets have been surprisingly calm’.

Not much has changed since then, with markets still seeming to adopt a remarkably relaxed attitude to developments concerning Brexit and the unconventional diplomacy of the United States. The relaxed attitude is unlikely to last forever as the issues on both sides of the Atlantic are likely to come to a head over the next six months. Whilst it is foolish to try and predict the outcomes of these events, we believe it is prudent to prepare for negative eventualities. With this in mind, we’ve made sure that portfolios have a decent portion of lower risk assets to mitigate any substantial falls.

The market declined marginally over the last quarter, which can be attributed to a slight strengthening of sterling causing falls in large multinational firms. However, barring some deterioration in geopolitical matters, it looks fairly well underpinned due to the insatiable demand for income from investors. Until interest rates rise substantially, equity investments will remain one of the only asset classes where investors can generate a relatively high income.

The market did, however, get revved up for Aston Martin (pardon the pun) floating on the stock exchange; but it appears investors may have confused their love of the cars with making sound investment decisions. Whilst this could be a highly successful business in the future, Aston Martin was priced at fifty times profits, which seems very expensive for a cyclical business that is reported to have gone bust seven times in the past century. We prefer businesses which we perceive to be less volatile and which are not priced at excessive valuations. Only time will tell if we are right or wrong with our analysis; however, the share price fell on the first day of trading, which is not a ringing endorsement.

Whilst we are wary of what is going on in the world, we are still finding the opportunities to deploy capital into good quality investments at attractive prices. However, it is important to strike a balance between being defensive and aggressive due to the uncertainties that could afflict the market over the coming months.

Our departure from the European Union and the potential trade wars instigated by America are the most important issues of the moment and these have been well analysed and reported on by the press. It doesn’t seem sensible to comment thoroughly on these matters until a conclusion has been reached. When this time does come over the next few months, a more substantive analysis will be provided by us on what this means for investment markets going forward. Until that point, we shall continue to aim to deliver attractive returns without taking undue risk.

Commentating on the market can often be a precarious pastime and the UK market has fallen to just over 7,000 since this piece was written earlier this month. Global growth and US interest rate rhetoric, among other factors, has caused recent market volatility. It is worth noting that our investment process and thinking remains the same. It is sensible to have capital invested in low risk assets and have cash available to take advantage of market weakness. We are watching the current developments with interest and will look to increase equity exposure within portfolios when opportunities arise.