Our Investment Perspective

We have been broadly optimistic over the outlook for equity markets this year, and have seen them move higher across the board – in some cases very strongly.  At the same time, we have been emphasizing the need to understand that there are risks and that there may well be periods of uncertainty or worse.  Some of the triggers for nervousness are now approaching – the next rise in US interest rates, elections in Europe and, of course, the UK starting the process of leaving Europe.

On the up

There seems to be a clear consensus that US interest rates will go up this month.  It is not exactly a shock to us and has been widely discussed for a long time.  The likelihood of a tantrum, or even a hissy fit, in markets seems pretty unlikely.  We still feel that the rise reflects confidence in the US economy and that it should, therefore, be seen as a good thing.  The real key, of course, lies in the rate at which subsequent moves are made.  Too far and too fast would be a very real threat and something investors should rightly be nervous of.  However, we expect things to be handled much more prudently and remain optimistic.

What do you do about Europe?

On the one hand, Europe looks like a political basket case.  On the other, there seems to be some real traction in terms of economic recovery as deflation retreats and sentiment picks up.  Which will be the winner in this conundrum?  Given some of the recent strength in equity markets, the short term looks as if the winner will be the worries over the politics.  Whether it is Dutch or French elections, Turkish threats or debt worries, there seems to be a taxi rank of anxious moments forming.  However, if the underlying economic picture continues to improve, then the medium term outlook could be much brighter.  It may not be time to jump in yet, but we will be watching developments closely.

Pulling the trigger

The political wrangling and accompanying media speculation about the UK leaving the European Union seems to go on and on.  Sadly, it is not going to stop any time soon either.  However, we do seem to be approaching the end of the beginning which will be marked by the triggering of Article 50.  Of course that simply marks what may well be years of more posturing and squabbling.  Such European negotiations have something of a game of Mornington Crescent about them – they appear improvised, incomprehensible and lacking rules.  The big difference is, of course, that, they are not funny.  Well, not often anyway.

As investors, we need to look through this noise and assess what will be the likely impact on UK assets.  At this stage, we see most of the ‘action’ being likely to be seen in the currency in the short term.  The pound has already fallen considerably.  Inevitably, depending on the political viewpoint, this has been seen as either a calamity for the economy or the best thing for UK exporters in years.  Some of these arguments feel rather speculative to us.  Looking towards the medium term we feel the pound may well be over sold – and this is why we have recently ‘repatriated’ some of our US dollar linked positions.  We still like UK equities – despite our recent profit taking – and, as in Europe, continue to view any forthcoming weakness as more of an opportunity than a threat.

Stay focused

Yet again, we find short term worries looming large over a generally sound economic backdrop.  We have been more defensively positioned in expectation of these concerns, but have also made sure that we participated in the upward moves too.  The coming weeks may well be challenging.  They will certainly be tedious in terms of more noise.

Regulatory Notice

European Wealth is a trading style of European Investment Management Limited (registered number 06931664) which is incorporated and registered in England and Wales with registered office at Ellenborough House, Wellington Street, Cheltenham, Gloucestershire GL50 1YD and authorised and regulated by the Financial Conduct Authority.  This message contains information that is confidential and privileged and it must not be distributed to any third party either whole or in part. If you are not the intended recipient, please advise the sender immediately and delete this message. This message is not to be construed as a solicitation or offer to buy or sell securities and does not in any way constitute investment advice, nor should it be used as the basis for any investment decision. The information contained in this message has been prepared using all reasonable care. However, it is not guaranteed as to its accuracy, and it is published solely for information purposes. Our opinions are subject to change without notice and we are not under any obligation to update or keep this information current.

Risk Warnings

The investments discussed in this message may not be suitable for all investors. European Wealth does not guarantee the performance of any investments. Past performance is not necessarily a guide to future performance. The value of investments may go up or down and you may not get back the amount you have invested. The income from an investment is not fixed and may fluctuate. The value of an investment involving exposure to foreign currencies can be affected by exchange rate movements which may cause the value of the investment to go up or down. European Wealth and/or its affiliated companies and/or their employees may, from time to time, hold shares or holdings in the securities discussed in this message and may as agent buy or sell those securities.

Restricted Investors

This document is not, and under no circumstances is to be construed as, an advertisement, or any other step in furtherance of a public offering of shares in the United States or Canada. This document is not aimed at persons who are resident in the United States, Canada or any province or territory thereof.