Market News

Market Update - June

16/06/2015

Kate Rogers

Kate Rogers

Head of Policy, Co-Manager - Charity Multi-Asset Fund, Cazenove Charities

Mixed economic results emphasise divergence

Recent economic data from around the globe has shown mixed results.  The US, UK and Japan have been disappointing, Emerging Markets are meeting low expectations and Europe is providing a bright spot.  The benefits to the consumer of a lower oil price seem to be taking longer than expected to feed through and the impact of reduced capital spending by oil companies is having a depressing effect on activity, particularly in the US.   The US is also starting to see a pick up in inflation through wages which, combined with slower growth, is typical of an economy nearing the end of the cycle.  This means we are likely to see an increase in US interest rates this year.  Conversely Europe has provided positive economic surprises, helped by the quantitative easing and the weak Euro boosting exports.

Election uncertainty passes but Grexit and Brexit uncertainty continues

The UK election has passed with the Conservative Party gaining an unexpected majority.  This removed an enormous amount of uncertainty in the near-term over the ability of the government to legislate and helped lift UK equities and sterling in the immediate aftermath.  The result should boost UK economic activity as households and businesses can take decisions with greater certainty over tax and regulation.  However, the austerity plans will continue to act as a drag and the focus of investors is likely to shift to uncertainty ahead of the proposed referendum on the UK’s membership of the EU, the ‘Brexit’ as it has been labelled.  Nearer term the ‘Grexit’ threat remains, although the implications should Greece leave the EU are less likely to be significant economic damage, and more likely to be disruptive to the sentiment and confidence of investors in the region.

Rising volatility in markets highlights the value of diversification 

The economic and political backdrop all adds up to an increase in expected market volatility.  Following a number of years of strong equity market progress in the developed world, the threat of increasing interest rates in the US, and UK, suggests a more uncertain future.  Bond markets are also at risk of capital loss as yields move upwards to reflect increasing interest rate expectations.  We are mindful of these concerns and are cognisant of risk in portfolios.  We remain committed to equity markets, where corporate earnings growth appears attractive, and believe in the benefits of diversification into alternative assets, such as absolute return, where appropriate.  We are convinced that stock and fund selection is of paramount importance in a time of increased divergence, and are favouring active unconstrained managers within equity allocations.  We continue to struggle to see value in bond markets at current levels, preferring to hold absolute return approaches where appropriate.  UK commercial property has proved an attractive diversifier over the recent past, and rental growth is providing additional support.

 

Important information

The opinions contained herein are those of the Charity team at Cazenove Capital Management and do not necessarily represent the House View. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital Management does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital Management has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital Management is a trading name of Schroder & Co. Limited 12 Moorgate, London, EC2R 6DA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored.

The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital Management does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital Management has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital Management is a trading name of Schroder & Co. Limited 12 Moorgate, London, EC2R 6DA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored.