Market Commentary – February 2019

11th February 2019

The Author: David Cooper
Financial strategist, investment adviser and Sales Director for United Advisers

On the whole, an enthusiastic market response for the beginning of the New Year, perhaps bearing out the legitimacy of the so-called ‘January Effect’.

With the rejection of Theresa May’s Brexit proposition on January 15th, major European markets rallied with a burst of optimism based on the potential for a postponement of the UK leaving the EU.  This may yet prove to be false optimism, with UK MPs still trying to ascertain from the Prime Minister whether or not they will have a chance for a ‘meaningful vote’ on a Brexit deal on February 27th, ahead of the February 29th ‘D-Day’.

It may be that the constant delaying seen of late is a deliberate, albeit dangerous, game of political cat and mouse designed to give lawmakers a chance to step in and delay matters until the EU summit scheduled for March 21st and 22nd .  Whatever the future intention may be January, nevertheless, saw a rebound from December figures of +2.9% for France, +4.1% for Germany, +5.5% for Italy and +4.5% for the UK, with sterling also rallying.

Major global equity markets were helped by the current truce in the US-China trade dispute, and an optimistic view of ongoing talks, as well as by an adjustment in US Fed language indicating it may not change interest rates in the near term.  Markets bounced back from December falls, with the US, China, Russia, South Korea, and Brazil all seeing substantial increases with U.S. equity markets having their best January since January 1989.

Emerging markets, meanwhile, also fared generally well, albeit experiencing a wide range of returns from +18% for Pakistan to -18% for Romania.

During 2019 clients can expect us to adjust portfolios as necessary to ensure they continue to be exposed to appropriate risk levels by maintaining a core portfolio that acts as a diversifier and provides stability.  Coming changes to portfolios will be made with this in mind by

  • Adding, where possible, short duration US Treasuries and high yield bonds;
  • Maintaining a combined US asset exposure (Bonds, High Yield, Equities);
  • Reducing direct exposure to Europe;
  • Refocussing emerging market exposure to concentrate on long-term trends in Asia, and;
  • Maintaining U.K., Asia Pacific and Japan equity exposures.