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Geopolitical concerns set to rule in “crabbish” 2018

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I thought that I should provide everyone with some thoughts on what is possibly in store for investors in 2018.  I have therefore decided to provide an insight into what investment managers are thinking at Redmayne-Bentley.  Needless to say this is only their opinions but it will at least provide a basis for a conversation if anyone wishes to talk about investments with me.

It was predicted to be a year of global turbulence, yet 2017 saw markets power through the political noise as the Dow Jones rose nine months in a row and the FTSE 100 closed the year at a new high. Whilst global equities are expected to deliver further returns, subdued UK economic growth and ongoing Brexit negotiations are expected to hold back UK equity markets in the New Year, according to investment management and stockbroking firm Redmayne Bentley.

Key predictions:

  • The ‘crab’ is expected to rule the FTSE 100 for the third year running.
  • Overseas equities expected to see the most gains in 2018.
  • Scottish Mortgage Investment Trust named as the favoured FTSE 100 stock for the year ahead.
  • UK GDP growth expected to be below expectations.
  • US and emerging markets predicted to see most gains with UK equities seeing most losses.
  • Technology identified as favourite sector with retail named as area to avoid for the second year running.
  • Interest rates to meet analyst expectations, but inflation expected to rise above forecasts.

For the third consecutive year, investment managers and stockbrokers at the firm said they expected the movements of the FTSE 100 to be “crabbish” – that is, neither moving significantly upwards or downwards over the next 12 months. Investment manager Bill Keen said: “Geopolitical risk is likely to remain high. “Risks include the ever-quickening pace of technological change and re-emergence of serious tensions within the EU. A worse-than-expected slowdown in China would not be entirely a surprise.”

The majority expected economic growth to be below the Organisation for Economic Co-operation and Development (OECD)’s forecast of 3.7%. Interest rates are expected to remain at around 0.7%, the level mapped for the end of 2018 in the Bank of England’s latest Inflation Report. However, half of those surveyed said they believed inflation would rise above the Bank’s forecast of 2.3%. Technological advancement featured heavily in 2017, with the rise of cryptocurrency Bitcoin and the launch of electric vehicles amongst other innovations. Optimism is still strong around technology as it was named as the favoured investment theme for 2018. Furthermore, blockchain projects and artificial intelligence are just two technologies expected to continue their march forward during 2018. It is perhaps unsurprising, therefore, that technological advancement was named the top ‘bull’ issue for markets in 2018. However, more than 90% of those questioned said they believed the withdrawal of central bank stimulus would be among the “bear” issues expected to drag on markets in 2018. Investment manager Tony Oxley said: “’If we see global growth strengthen, I think stock markets will struggle as stimulus will be withdrawn. However, I do not see strong global growth. Alternatively, if it stays around current levels I think central banks will still do their best to normalise rates but it will take longer. The second half of 2018 may be a tough time due to this.”

The predictions put forward in this year’s survey were varied and it is worth bearing in mind that these are ideas, rather than recommendations to buy or sell shares in any investments or areas mentioned. Furthermore, investments, and income can fall as well as rise in value and you may lose some or all of the amount you have invested. The performance of the stocks and sectors mentioned, and forecasts for the year ahead, are not a reliable indicator of the future results or performance. Which asset class do you think will see the most gains during 2018?

 

Rank Asset class
1. Overseas equities 78%
2. UK equities 10%
3. Alternatives 8%
4. Cash 2%
5. Property 2%

Which equity market will see the most gains during 2018?

Rank Market
1. US 25%
2. Emerging markets 23%
3. Japan 21%
4. Asia-Pacific (exc. Japan) 13%
5= Europe 9%
5= UK 9%

Which equity market will see the most losses during 2018?

Rank Market
1. UK 37%
2. US 25%
3. Europe 17%
4. Emerging markets 12%
5. Japan 6%
6. Asia-Pacific 3%

Top ranking global Bull and Bear issues

Rank Bull % Rank Bear %
1. Technological advancements 92% 1. Withdrawal of central bank stimulus 92%
2. Chinese consumer growth 82% 2. Alternative Trump-related global crisis 65%
3. Stimulative Trump policy 75% 3. North Korea 63%

In general, how do you feel about the prospects for the UK economy in 2018?

Optimistic Neutral Pessimistic
17% 54% 29%

GDP Growth

Forecast: 3.7% (Organisation for Economic Co-operation and Development)

Above expectations Meet expectations Below expectations
12% 21% 67%

Sterling/USD

Current Level: 1.3 (Nov 2017)                  

Above current level Remain the same Below current level
35% 37% 28%

Bank of England base rate

Forecast: 0.7%; current: 0.5%

Above expectations Meet expectations Below expectations
27% 56% 17%

House prices

Forecast: 2% increase (Countrywide)

Above expectations Meet expectations Below expectations
30% 35% 35%

Inflation

Forecast: 2.3% (Bank of England)

Above expectations Meet expectations Below expectations
50% 36% 14%

Wage growth

Forecast: 2% (CIPD)

Above expectations Meet expectations Below expectations
8% 50% 42%

Jobs/employment (ILO Unemployment Rate)

Forecast: 4.6%

Above expectations Meet expectations Below expectations
13% 66% 21%

Which three UK sectors do you expect to show the most growth in 2018 – and which are you going to avoid?

Rank Favoured Rank To avoid
1. Technology 77% 1. Retailers 75%
2. Pharmaceuticals 42% 2. Travel and leisure 58%
3. Banking 35% 3. Banking 33%
4. Oil and Gas 25% 4. Media 23%
5. Mining 23% 5. Mining 21%

How do you think the FTSE 100 will perform during 2018?

Bullish Bearish Crabbish
13% 30% 57%

Last year, 34% of those surveyed classed themselves as ‘bulls’, holding an optimistic view of the year ahead. This year, just 13% said they were bullish.

Despite the gloomy outlook, however, when asked how high the FTSE 100 would reach during 2018, respondents came back with an average predicted high of 7763. For 2018, the average predicted low point for the index is 6739.   The Favourite FTSE 100 Companies for 2018

Rank FTSE 100 Companies
1. Scottish Mortgage Investment Trust (SMT) 29%
2. GlaxoSmithKline (GSK) 17%
3= BT Group (BT.A) 13%
3= Imperial Brands (IMB) 13%

Favourite investment themes for 2018

Rank Theme
1 Technology 75%
2= Infrastructure 33%
2= Emerging market equities 33%
2= Inflation proofing 33%
3 Japanese equities 29%

I would of course be delighted to be contacted either by email at Rupert.harvey@redmayne.co.uk or my mobile 07711 710 628 should anyone wish to discuss either their investments or how to go about investing in the markets.  Finally, let’s hope that we all have a prosperous 2018.

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The following is the Elf ‘n’ Safety take on some of our favourite seasonal songs:
Please note that the following is meant as a bit of seasonal fun, no Health & Safety practitioner would ever act like this and the HSE itself do go to extreme lengths to bust these Elf ‘n’ Safety myths. (Courtesy of Tony)

The Rocking Song
Little Jesus, sweetly sleep, do not stir
We will lend a coat of fur
We will rock you, rock you, rock you
We will rock you, rock you, rock you

Fur is no longer appropriate wear for small infants, both due to the risk of allergy to animal fur, and for ethical reasons. Therefore faux fur, a nice cellular blanket or perhaps micro-fleece material should be considered a suitable alternative. Please note; only persons who have been subject to a Criminal Records Bureau check and have enhanced clearance will be permitted to rock baby Jesus. Persons must carry their CRB disclosure with them at all times and be prepared to provide three forms of identification before rocking commences.

Jingle Bells
Dashing through the snow
In a one horse open sleigh
O’er the fields we go
Laughing all the way

A risk assessment must be submitted before an open sleigh can be considered safe for members of the public to travel on. The risk assessment must also consider whether it is appropriate to use only one horse for such a venture, particularly if passengers are of larger proportions. Please note; permission must be gained from landowners before entering their fields. To avoid offending those not participating in celebrations, we would request that laughter is moderate only and not loud enough to be considered a noise nuisance.

While Shepherds Watched
While shepherds watched
Their flocks by night
All seated on the ground
The angel of the Lord came down
And glory shone around

The union of Shepherds has complained that it breaches health and safety regulations to insist that shepherds watch their flocks without appropriate seating arrangements being provided, therefore benches, stools and orthopaedic chairs are now available. Shepherds have also requested that due to the inclement weather conditions at this time of year, they should watch their flocks via CCTV cameras from centrally heated shepherd observation huts. Please note; the angel of the lord is reminded that before shining his/her glory all around she/he must ascertain that all shepherds have been issued with glasses capable of filtering out the harmful effects of UVA, UVB and Glory.

Little Donkey
Little donkey
Little donkey on the dusty road
Got to keep on plodding onwards
With your precious load

The RSPCA have issued strict guidelines with regard to how heavy a load that a donkey of small stature is permitted to carry. Also included in the guidelines is guidance regarding how often to feed the donkey and how many rest breaks are required over a four hour plodding period. Please note that due to the increased risk of pollution from the dusty road, Mary and Joseph are required to wear facemasks to prevent inhalation of any airborne particles. The RSPCA has also expressed discomfort at donkeys being labelled ‘little’ and would prefer they just be simply referred to as Mr. Donkey. To comment upon his height or lack thereof may be considered an infringement of his equine rights.

We Three Kings
We three kings of Orient are
Bearing gifts we traverse afar
Field and fountain, moor and mountain
Following yonder star

Whilst the gift of gold is still considered acceptable – as it may be redeemed at a later date through such organisations as ‘cash for gold’ etc., gifts of frankincense and myrrh are not appropriate due to the potential risk of oils and fragrances causing allergic reactions. A suggested gift alternative would be to make a donation to a worthy cause in the recipient’s name or perhaps give a gift voucher. We would not advise that the traversing kings rely on navigation by stars in order to reach their destinations and recommend the use of the RAC route finder or satellite navigation, which will provide the quickest route and advice regarding fuel consumption. Please note as per the guidelines from the RSPCA for Mr. Donkey, the camels carrying the three kings of Orient will require regular food and rest breaks. Facemasks for the three kings are also advisable due to the likelihood of dust from the camels’ hooves.

Rudolph the Red Nosed Reindeer
Rudolph, the red-nosed reindeer?
Had a very shiny nose
And if you ever saw him
You would even say it glows

You are advised that under the ‘Equal Opportunities for All’ policy, it is inappropriate for persons to make comment with regard to the ruddiness of any part of Mr. R. Reindeer. Further to this, exclusion of Mr. R. Reindeer from the Reindeer Games shall be considered discriminatory and disciplinary action will be taken against those found guilty of this offence. A full investigation will be implemented and sanctions – including suspension on full pay – will be considered whilst this investigation takes place.

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Equity Insight

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Not only are we having to contend with the ever present and seemingly endless Brexit negotiations but we are now having to suffer lurid press headlines in regard to vast hordes of politicians who can’t seem to keep their hands under control.  No doubt we shall hear more about the do’s and don’ts from Clive and Caroline and possibly what are the consequences from Chris!

We have today received notification from the Monetary Policy Committee of the Bank of England that interest rates have risen by 0.25% to 0.5%.  For some this is historic as not only will it be the first time that rate have risen in over 10 years but also possibly the first time ever that they have doubled in a single day!

Given all these changes I thought that you should have a read of the latest Equity Insight – Issue 660.  There are some views on what is happening to the markets but also some thoughts on how business is reacting and positioning itself for a number of potential outcomes.

Feel free to contact me if there is anything of interest in the Equity Insight that you might like to discuss on either my mobile 07711 710 628 or my email address Rupert.harvey@redmayne.co.uk.

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3 business lessons from the movie Hidden Figures

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Inspiration in business can come from the strangest places. The other evening I was watching the film Hidden Figures. It tells the true story of a group of African-American women who played a crucial role in the space race for NASA during the 1960s. It’s an inspiring and moving story of their fight against prejudice and discrimination in an America that still had segregation. 

It’s a great film, well worth watching, but next day I realised it had a lot of messages about building successful businesses.

One of the three main characters is Dorothy Vaughan. Dorothy headed a 30-strong segregated team of ‘human computers’, women who made the complex mathematical calculations needed for space flight by hand. The film tells how she realised that the new IBM computer would soon replace her job, so she took matters into her own hands, taught herself the programming language Fortran then trained her entire team in it too.

There are three key things all of us can learn from Dorothy Vaughan’s story.

1.      She had her eyes open

Dorothy identified and understood the threat to her livelihood – she was alert to the changes going on around her. Are you looking to see trends and developments in your particular marketplace? Are you awake to changes? What are the threats to your business right now? These may not be technical, as in Dorothy’s case, but may pose just as big a threat.

Too many business owners have their heads in the sand, focusing purely on what they are doing – and the way they have always done it. Develop a strategy for making yourself aware of the changing business environment.

2.      She embraced the change

Dorothy Vaughan refused to be left behind. She didn’t moan or complain about her bad luck, being a ‘human computer’ just when a machine that could do 24,000 calculations per second was being launched. She equipped herself with the knowledge to take advantage of the brave new world of machine computers.

And it wasn’t easy – in the film, the book she needs to teach herself programming is in the ‘white only’ section of the library where she is not allowed to go. So she ‘borrows’ it as she is thrown out by police, telling her son ‘I have paid my taxes, you can’t steal something that you have already paid for’!

As an African-American woman in the segregated south of the USA, Dorothy faced just about every level of opposition she could. Her determination and effort made the difference; through her struggle she positioned herself as the go-to expert.

As Charles Darwin said, ‘it is not the strongest species that survive, nor the most intelligent, but the most responsive to change’. Dorothy took a threat and turned it into an opportunity.

3.      She took her team with her

Throughout her career Dorothy Vaughan was an advocate of women of all colours. Having learned Fortran, she taught her team, so that when NASA realised it needed more programmers, she could meet that need with her team, thus keeping them all in a job.

Investing in your team, keeping their skill set up to date, is crucial for any business to grow. If you find yourself unable to trust your workforce with tasks, ask yourself if you have equipped them with the skills necessary. A chain is only as strong as its weakest link!

In a rapidly changing business environment, we all need to be looking at what’s coming down the line. We’ll need to adapt, to develop our skills, and ensure our team is ready too.

Now, the big question is who to cast in the lead role of ‘Altus – The Movie’?

 

 

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Should we fear October

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Should we fear October?

11 October 2017

October is considered by many to be the scariest month. This year, not only do we have Friday the 13th to contend with, in addition to the traditional Halloween mischief night and trick or treating, but seasoned investors may know that October is historically one of the most volatile months for stocks.

Additionally, for those of you who are superstitious, 2017 may bring extra dread if you believe the ‘curse of the number 7’. This relates to the theory that the month of October suffers especially significant drops, in particular, in years ending in the number 7.

The most well-known cases of this phenomenon were in 2007, 1997 and, of course the largest of drops, known as ‘Black Monday’, in 1987.

On 19th October it will be 30 years exactly since ‘Black Monday’, when the FTSE 100 index dropped by 12.2 per cent and the Dow Jones plummeted by almost 22 per cent in just one day, falling by 508 points. This still stands on record as the biggest single-day percentage decline.

However, despite the dramatic falls, the crash of 1987 was relatively short lived. During the next two trading days, the Dow gained nearly 300 points and the market actually finished the year above where it started.

The stock market is resilient and has recovered from difficult times. When considering the month it is worth remembering that past performance is not an indicator of future results. October is actually one of only 3 months in the year when the FTSE 100 tends to outperform the mid-cap FTSE 250. This could be due to the fact that October signals the end of the weak trading period, starting at the beginning of May, caused by the ‘Sell in May’ effect.

Additionally, on average, markets in October tend to rise in the first fortnight of the month before falling back. The last few days of the month tend to see a rise and the last trading day of the month usually has the best record of any month’s final trading day.

This year could be a positive one for October, as gains in the market have successfully navigated August and September, the worst two-month stretch of the year, based upon historical performance. If this trend continues in October we could see even stronger gains in the market going into 2018.

However, with the threat of a potential rise in interest rates, tightening monetary policy in the US and the conflict between the US and North Korea and other geopolitical factors it may be worth keeping a look out for signs of potential volatility.

Be prepared to react but keep a level head, don’t panic and think about the longer term. Having confidence in your portfolio and holding well-thought-out investments with long-term strategies should help you to stay calm when others may not.

Additionally, if stocks do fall in October, as history suggests, then this could actually present buying opportunities, especially if stocks become attractively valued.

Of course, if you find that you lack the time or opportunity to monitor your portfolio then you may wish to entrust the running of your portfolio to a qualified Investment Manager, obviously I would be only to happy to help out.  Please contact me on 07711 710 628 or Rupert.harvey@redmayne.co.uk.

Please note that investments can fall as well as rise in value and past performance is not an indicator of future results.

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