Spring Market Commentary

UK: Unless you’re lucky enough to have spent the month in a peaceful place of extreme isolation, we’re sure you’re aware of the Brexit chaos currently taking place in Westminster. As at the time of writing, nothing has been agreed in parliament and all is very much liable to change. Of course, the eventual outcome will have a large impact on global markets. We are past the Brexit deadline of 29 March and Britain’s future is as clear as mud.

As it stands, Theresa May can still avoid a no-deal Brexit by presenting the EU with a credible alternative plan. However, there is still a chance that this may happen. This continued uncertainty could have an enormous impact on the British economy. Business leaders have warned that we risk trashing our relationship with EU countries and jeopardising future investment if we go on like this.

Elsewhere, the British retail sector saw a dire month. Debenhams issued a profit warning, Office Outlet (formerly known as Staples) went into administration and Thomas Cook announced plans to close 21 shops and cut 300 jobs.

However, it wasn’t all bad. In fact, the British economy churned out some impressive figures. Unemployment fell to its lowest for 45 years and ONS figures showed that the economy had grown by 0.5% in January – more than double economists’ predictions of 0.2%. Imagine how well we could be doing without all this uncertainty!

The FTSE performed strongly during the month. It rose by 3% to 7,279 – up 8% for the first quarter of 2019.

Continental Europe

The Eurozone economies have not had a good month. EU manufacturing is in the grip of a massive downturn, forcing the European Central Bank to act. German car production is under threat which could have major implications for EU economies. Cars account for over 20% of exports in Germany, the Eurozone’s largest economy, and if this industry suffers a massive downturn, the effects will be severe and felt across the continent.

The markets were quiet over the Channel. The German Dax rose by just 10 points to 11,526. The French markets performed better, rising 2% in March, up by 13% for the year to date.


The figures indicate that the US economy looks to be slowing up. In March, the economy created just 20,000 jobs, far below official estimates of 180,000 for the month. In the wake of this, it came as little surprise when the Fed voted unanimously to not raise interest rates above 2.5%.

Following what we said about the German car industry, US company Tesla is on course to outsell Mercedes and BMW in the US, showing that the car industry appears to be changing rapidly, even in a country where ‘gas’ is relatively cheap.

The Dow Jones had a slow month, finishing March up just 13 points at 25,929. It did perform incredibly well during the first few months of the year, rising 11% overall.

Far East

Increasing optimism about the USA/China trade talks last month has put the fire back in the Chinese export markets. What’s more, the government announced tax cuts worth £229 billion, in an attempt to boost spending at home. Stock markets have responded positively. The Shanghai Composite Index rose 5% to close March at 3,091, up 24% for the year to date. Elsewhere, Hong Kong rose by just 1% to 29,051, and Japan and South Korea fell by 1% and 2% respectively.

Despite the Brexit chaos gripping the nation, we hope you manage to have a pleasant month. Hopefully by next month’s market bulletin, we will have more clarity.

these were reached. What we take from this experience is how sensitive valuations are to declines in long term interest rate expectations and that central banks are ready to lower rate expectations to support fragile economies. While this remains the case, equity valuations are unlikely to fall to bargain levels. Next time we shall have to factor this into our buying trigger.

However, this sensitivity to interest rates does highlight a potential risk. Inflation over recent years has been very modest and this has allowed central banks to lower rates to support growth. If price increases become material and widespread, central banks will be forced to lift rates, possibly rapidly. This would have very unpleasant consequences for financial markets. Fortunately, we don’t see this as a likely outcome but the threat means that we are unlikely to become aggressively positioned in the portfolios, especially at a time when valuations are not cheap. Our central expectation is that markets will remain volatile but gradually advance over time with the best, though most volatile, returns coming from equities.

One matter that we have not mentioned is Brexit. At the time of writing, this remains unresolved. Predicting the political outcome of this process is impossible and our investment strategy on UK equities reflects this. Even once the political decision has been taken, the economic consequences will be very uncertain. However, in time these uncertainties will diminish and eventually clear. Talented fund managers should be able to identify companies that will benefit from this changing landscape and profit from these opportunities. We are alert to this and poised to act once the political course of action has been clarified.


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