So the French election is out of the way and we have, apparently, avoided a catastrophe. Whatever the spin put on it by those with a political axe to grind, what will be more interesting will be the French Parliamentary elections in a month’s time. President Macron has no ‘party’ as such, so things may prove challenging in the future. We expect, initially at least, this result will reinforce the Europe equity bulls – whose cause seems to be helped by further good data on economic growth. We are more skeptical medium term and will remain underweight, with a clear focus on northern European economies.
Turning to the United States, another interest rate rise in the near future seems to be on the cards. The underlying economy continues to grow and so this should not, necessarily, be seen as a bad thing. We do wonder, though, whether the widely publicized stimuli from spending on infrastructure and tax cuts will have quite as much of an impact as was originally heralded? Or will it, in fact, come simply from the continuation of the current cycle? Either way, we still want to retain our US equity exposure – and our US dollar exposure. And we are still focused on a more domestic bias in the face of continuing consumer confidence and expectations of further dollar strength.
Property has been an area we have been watching for some time. Some two years ago we warned of an impending liquidity crisis in bricks and mortar property funds and sold our positions. And the expected crisis did, indeed come to pass. We retained our more liquid property securities positions at that time. Now, however, we are selling these, too. Do we expect another crisis? In short, no. But we do see property as a ‘leveraged bet’ on bonds – and we have disliked bonds for some time. We feel the time is right to take the profits we see in this now expensive asset class and seek other opportunities.
Our sense of optimism remains intact. So far, at least, we have not been irradiated, nor has Europe reverted to the 1930s. Instead, we see the global economy remaining solid and see some real opportunities in areas such as Asia and emerging markets for future good returns. We still see the possibility of short term uncertainty or, worse, sharp sell offs. But that is nothing new and is, in our view, part and parcel of investing.
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