Monthly Market Update:A recession nearing?

Wed 11 Sep 2019

Read our full Monthly Market Blueprint Sept 2019

•Global economic data continue to indicate contraction in global manufacturing and a slowdown in services. The US has joined the cohort of large countries which now see their economy slow. Inflation remains at bay and unemployment in developed markets is near all-time lows. Yet consumption is dented and capital expenditure is suffering as a result of weaker trade. Countries with strong internal demand tend to suffer less than those more dependent on asset-heavy exports.

•Risks for global growth are increasing: Trade wars, Brexit uncertainty and the Chinese slowdown, along with the fact that the cycle is well into its 10^th year, may unnerve investors. Central bank accommodation is increasing, and the Fed’s persistent assuaging of investor anxieties certainly helps those investors willing to buy on a dip.

•Within our portfolios asset allocation was marginally negative while fund selection was positive. Previously being underweight fixed income had paid off, however this position reversed in August as yields fell on trade war fears and recession signals, such as the yield curve inversion. However our overweight in gold was positive and largely offset the losses from fixed income.

•Our latest investment committee in June felt that conditions in the UK have worsened and that probabilities of a Hard Brexit have climbed. Therefore, we reduced weight in UK small cap stocks and UK property and increased weight in US stocks, gold and cash. We don’t maintain strong geographical preferences at this point, awaiting for more visible catalysts going forward. We still believe that the cycle, for the time being, remains intact but it is showing increasing signs of maturity.