market commentary

The World In A Week - LatAm Shenanigans

February was generally a positive month for equity markets, but last week turned out to be quite a bumpy ride, particularly in the US, and notably within the technology sector. Albeit from low levels, we have seen a pick-up in government bond yields, with the expectation that central bank policy decisions will ultimately lead to inflation. The market has extrapolated that this will need to be countered with interest rate rises. With valuations on many technology darlings having become stressed, the market is now beginning to worry that rates and inflation could damage future growth and start taking flight into other areas of the market.

Outside of technology, stay at home themes have clearly been massive beneficiaries of the pandemic since last March, but last week saw a reversal of their fortunes with Working from Home and Stay at Home themed stocks down -8.5% and -8% respectively (source: Morgan Stanley), while more cyclical parts of the market sat comfortably in positive territory.  Are we starting to see the first signs of the market leaving behind COVID-19 winners? If we look at the macro backdrop this is looking fairly robust and supported by fiscal and monetary policy. With the move up in yields, could this potentially be supportive of a shift in market sentiment? Higher rates have always been a risk to contend with but only recently have come to the forefront of investors’ minds, as the speed of the move has been sharp and fast.  Investor positioning towards technology and momentum remains high, so it is something to keep a close eye on.  As ever, all focus will be on the Fed and the tone of language of how they propose to manage these choppy waters.

As investors, we look for good opportunities at the right price, trying to ascertain what might be the turning point for an asset class that has previously been unloved and out of favour. As an Investment Committee, we have recently increased our allocation to UK equities as the headwinds from Brexit seem to have been removed and appear to be well-positioned in terms of vaccinating against the COVID-19 virus and potentially returning to normal. An asset class that is cheap relative to history and its peers. Sometimes, however, an asset class can be cheap and remain cheap for a reason. If we look at Latin America and Brazil as an example, these are markets that are notoriously volatile and not for the faint- hearted, which has been illustrated again over the last few days. When Bolsonaro took over the Presidency in January 2019, this was viewed as very market-friendly, and the market reacted accordingly, but last week he ousted the CEO of Petrobras and put in charge the head of the military. Truckers have been protesting about the rising cost of fuel and, with elections coming up next year, Bolsonaro does not want anything to upset his chance of re-election. This move is designed to put a control on the company and the oil price. Unsurprisingly, the Petrobras share price took a nosedive.  Whilst we do not have any material exposure to the region, it is relevant in the context that politics can play an unfortunately large part on sentiment and impact markets, as witnessed by the fallout of the Brexit vote of June 2016. Watching out for opportunities and threats will always be the name of the game.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete.  Unless otherwise specified all information is produced as of 1st March 2021.
© 2021 Beaufort Investment. All rights reserved.

Eight wealth managers on their top China funds

Wealth Manager asked eight wealth managers about their top China funds to commemorate the Chinese Year of the Ox.


market commentary

The World In A Week - Dr Copper Makes A House Call

Last week saw the continuation of a reversal of fortunes for major asset classes. Having been totally unloved since 2016; UK Equities were the only equity asset class in positive territory for the week. In addition to this, tech stocks as measured by the NASDAQ index sold off heavily, while global value equities outperformed global growth equities.  Furthermore, within Fixed Income,  a stark divergence in outcomes has emerged since the start of the year. High Yield bonds are in positive territory, China Bonds are flat, global credit and global treasuries are down and Sterling credit and Gilts are down heavily.

The primary reason for this shift in market dynamics has been the sharp and sustained rise in inflation expectations since their trough in March of last year, and the corresponding rise in global interest rates. While it is critical to bear in mind that inflation and interest rates remain at very low long-term historical levels, the recent trends have broken the market foundation that these variables are always on a persistent downward trend. This trend has been a major factor in allowing growth equities to dominate to the degree in which they have recently.

We are seeing this play out in multiple markets. The copper market (which has been dubbed “Dr Copper” given its alleged clairvoyance for rebounds in economic activity) has hit a 9-year high. WTI Crude Oil Futures are now priced at $60 dollars a barrel, having traded in negative territory last April, and the broader-based Bloomberg Commodity index is up +9.3% for the year to date. As mentioned in previous updates, global shipping costs have also risen sharply.

Global central banks, in particular the Federal Reserve in the US, have committed to leaving base interest rates unchanged to support the economic recovery from COVID-19. The Bank of England has also shown no desire to raise rates, although the prospect of negative rates now seems very far removed, however market interest rates have risen sharply. For the year to date, the yield on a 10 Year US treasury bond is up by +49.7%, while the yield on a 10 Year UK Gilt is up a whopping +261%. Chinese 10 Year rates are up only +3.3% over the same period, which has been beneficial to our positioning.

All of the above reinforces our view that now is the time for nuanced and tactful positioning across asset classes. A relatively higher inflation and interest rate environment would be no bad thing for the Value Equity, China Bond and High Yield components of our portfolios, and would also likely be supportive of  our recent decision to overweight UK Equity in lieu of the tech-dominated US market.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete.  Unless otherwise specified all information is produced as of [Date of Publication].
© 2021 Beaufort Investment. All rights reserved.

market commentary

The World In A Week – Half-Term Home Economics

Last week saw many of the developed nations release their GDP data relating to the final quarter of 2020.  The UK economy grew 1.0% in this period, beating market expectations, and meant that the UK avoided a double-dip recession.  However, the annual GDP growth figures looked less compelling with the UK economy shrinking by 9.9% in 2020, the largest annual fall on record.  The UK has been one of the hardest hit economies globally with the closure of the tourism and travel industries significantly impacting output, which contributes a staggering 11% to GDP.

Elsewhere, the final US GDP estimate will be released next week but the expectation is that the US grew at 4.0% in the final quarter of 2020. Revenues of companies who constitute the S&P 500 grew by 1.3% in the final three months of 2020 with profits accelerating 3.4%, beating analyst expectations.  The proposed $1.9 trillion stimulus package would certainly boost consumption and reduce unemployment levels which currently sit at 6.3%.  Goldman Sachs has forecasted that the proposed stimulus bill of $1.9 trillion may be reduced to $1.5 trillion, however this still equivalates to 7% of GDP.

The International Monetary Fund (IMF) also released its global outlook projections with world output expected to grow at 5.5% in 2021, with emerging markets such as China and India expected to lead the way.  Markets followed this same narrative last week with Morgan Stanley Capital International (MSCI) Emerging markets returning +1.50%, outperforming the S&P 500 and the FTSE All Share in Sterling terms.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete.  Unless otherwise specified all information is produced as of 15th February 2021.
© 2021 Beaufort Investment. All rights reserved.

market commentary

The World In A Week - Snakes And Ladders

Some elements of investing can be a zero-sum game.  When one side of an investment gains, the other side loses.  For those investing in GameStop, the profits made when the stock went up was reflected in the losses made by the hedge funds who were betting on the stock going down.  It is all well and good when the dice roll means you land on a ladder, but it is not so pleasant when you land on a snake.

So, it would appear that the Reddit bubble has burst and there will undoubtedly be some pain for those individuals who entered the battle late.  GameStop’s share price started the week at $316.56 and finished at $63.77, representing an almost 80% drop for the week, still significantly above its 52-week low of $2.57.

From a psychological perspective, we hope that these speculative episodes do not deter true investors from taking appropriate risks for their long-term investments, as they do not affect or influence our robust investment processes.

In a world that is waiting for vaccinations to inoculate sufficient people in order to ease lockdown restrictions, knowing that central banks and governments are still committed to providing liquidity and stimulus is critical.  This was underlined in the Bank of England’s Monetary Policy Committee minutes last week, where they explored the possibility of negative interest rates.  However, it was stressed by Governor Andrew Bailey that while we should expect the Bank of England to have investigated all monetary options, he did not want to send any signal that it intended to set a negative bank rate at some point in the future.  It is also clear that President Biden wants to reassure the US people  by pushing ahead with the latest instalment in a long line of fiscal stimulus plans.  The $1.9 trillion economic relief plan looks set to be pushed through, with or without the support from Republicans.

It seems that “doing whatever it takes” is the modus operandi for most central banks and governments during this pandemic,  and the originator of the phrase has returned to the political spotlight.  Former President of the European Central Bank, Mario Draghi, who adopted the phrase in 2012 to give reassurance that the Eurozone would not crumble, has been asked to head up the Italian government.   Can he repeat his success as Super Mario and stabilise a faltering Italy?

The final person sliding down the gameboard is Jeff Bezos who announced that he will be stepping down as Chief Executive of the world’s largest e-commerce retailer.  Climbing a ladder to fill those shoes is Andy Jassy, who was heading up Amazon Web Services and will have a big plate to deal with once the pandemic has receded.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete.  Unless otherwise specified all information is produced as of 8th February 2021.
© 2021 Beaufort Investment. All rights reserved.

market commentary

The World In A Week - GameStop & Match

Well, who would have thought a small US bricks and mortar video retailer would grab the attention of the world? As we keep seeing of late – expect the unexpected! We’ve not heard the term David vs Goliath being used as yet, but we’ll coin it!

GameStop is the company in question.  A company sitting in a very precarious financial position and being heavily bet against by the hedge fund firm, Mervin Capital.  Then, in step many private investors, fueled by social media chat on sites like Reddit, have protected the company from the “bully boys” of Wall Street. Well, what have we seen? The share price rocket over +900% this year, even though the stock price took a -70% hit on Thursday.  A company in the abyss worth less than $1bn a few weeks ago, suddenly skyrocketing to a market cap over $25bn, is simply staggering! The plot continues to thicken – industry watchdogs and regulators are warning about market abuse and potentially looking to step in. The trading platform that many ‘Redditors’ use to transact Robinhood Markets has stopped taking trade orders on the stock, with many private investors now crying foul – why can hedge fund managers do as they see fit, but mom & pop can’t? Lawsuits are being threatened, but Robinhood has probably taken the right moral action, to stop the same investors losing their shirt, as highlighted by the stock price fall on Thursday.  At the same time Robinhood also had to go looking for a cash injection itself, as they had to put up the collateral for these trades after they got so big!

Why should we care? Is this a real attempt to rescue the company or David trying to lay one on Wall Street Goliaths, and why if that’s the case? Woolworths, C&A, Blockbuster are just a few high street names that have fallen by the wayside.  Why? Because the model had stopped working and demand shifted elsewhere. However, is this whole episode significantly more profound and a reflection of the failures that lead to the Great Financial Crisis, and the widening social and economic gaps that continue to persist under capitalism. Will this be a watershed moment?

What we have seen over the last few months is that global economic data has been much stronger than forecast, which highlights the ability of humankind to adapt (or bouncebackability as they used to say on Soccer AM) in the face of adversity.

In other news – there continues to be mud-slinging in Europe over the slow and unequal rollout of the vaccines, we’re sure many Brexiteers are sitting there saying “I told you so!”.  Finally, the AstraZeneca vaccine has been given the approval in Europe, and the Novavax vaccine shows 89% effectiveness in UK trials. Normality may return…..

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete.  Unless otherwise specified all information is produced as of 1st February 2021. © 2021 Beaufort Investment. All rights reserved.