Market Update - April

Downward drift in global growth
Global economic growth forecasts have been trimmed  to reflect weaker data from both the US and Japan.  However, we still expect the world economy to grow and are not expecting a US recession or ‘hard landing’ in China.  The oil price falls of last year and the beginning of 2016 have enhanced deflationary
concerns, but more recent stabilisation means that we believe these fears are unlikely to materialise.  In fact we believe that inflationary pressure is underestimated and may surprise on the upside, in the US in particular,  which leads us to continue to expect interest rate increases by the Fed over 2016.

Volatility to remain elevated
These ongoing growth concerns, combined with fears over the efficacy and level of monetary policy easing will mean that volatility is likely to remain elevated.  Political challenges in the shape of the EU referendum and the US election are set to add to investor concerns, and the impact will continue to be felt in both currency and investment markets.

Earnings growth weakness
Analyst expectations for corporate earnings growth continue to be downgraded in many key markets. Corporate America is likely to feel the impact of wage inflation as a squeeze on profit margins, making it a more difficult environment for companies. Despite this, equity market valuations appear reasonable, and both the UK and Emerging Markets are expected to benefit from currency movements.

Portfolio implications
Although we remain fully invested in equities we are becoming a little more cautious, reflecting the perceived greater risks at this stage of the cycle. We continue to emphasise the benefits of diversification using alternative assets such as property, infrastructure and absolute return in portfolios where appropriate. The bond market remains vulnerable and we retain low exposure in portfolios. We seek to use cash to take advantage of volatile markets, despite the poor returns on offer.

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 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 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 is part of the Schroder Group and a trading name of Schroder & Co. Registered Office at 1 London Wall Place, London EC2Y 5AU. 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. 

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