Monthly Market Update – January 2019

Monthly Market Update – January 2019

Fri 18 Jan 2019

Read our full Monthly Market Update January 2019

  • December data indicated that the global economy continuesto slow, despite a persistent pick up in the services sector, as trade conditions deteriorate. Risk asset divergence, a theme of the previous quarter, seems to have abated, as US risk asset underperformance closed part of the gap with Europe and Emerging Markets. Oil prices rebounded somewhat in the beginning of the year, but overall investors worry more about deflation rather than inflation. New orders have been consistently slower, especially when it comes to manufacturing export, suggesting a broad-based slowdown.
  • Meanwhile trade wars, an uncertain Fed, Brexit uncertainty and growing suspicions of a sharper than anticipated Chinese slowdown, along with the fact that the cycle is entering its tenth year, continue to unnerve investors, causing more profound bouts of equity volatility.
  • Global equity valuations continue to hover just above historical averages, especially in the US. Investors are aware of the potential impact of political gridlock following the US mid-term elections.
  • Given the extent of uncertainty surrounding Brexit we remain cautious on the UK, as lower valuations are still justified by the overall slowing growth. Otherwise, we have no strong geographic preferences, favouring large-caps.
  • Our December Investment committee maintained its “equal weight” stance, while significantly reducing exposure in absolute return funds as we feel that potentially higher volatility could affect performance. In September, we reduced our weight in Emerging Markets and European equities, investing the money in UK and US small caps. We still believe that the cycle, for the time being, remains intact but it is showing signs of maturity.

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