An update on the markets from Brian Tora and our investment partners JM Finn.
Through a glass, darkly
Well, nobody can say that 2018 hasn’t been without its moments. A few weeks ago I was remarking that volatility could increase further if cracks started to appear in the US economic recovery. So far all seems calm and positive on the American economic front, but volatility has returned in spades. Talk about the expected Santa Rally. What we’ve seen this festive season has been more like a Santa Roller Coaster.
In the run up to Christmas it was looking as though this might prove one of the worst Decembers on record for investors, but a swift rebound on Boxing Day took some of the sting out of what has turned out to be a tricky year for investors. There was a decent follow through as Christmas week ended, though it was not a one way street and investors still found they were down on the year overall, even if bear territory has not yet been reached on either side of the Atlantic.
So, what might we expect for the year to come? The vote on the Brexit deal due in mid-January promises to keep the destabilising influences in play, though a negative outcome for the government could see the Footsie trade higher. Rejection of May’s Chequers’ deal by Parliament is likely to send the pound lower, but with the bulk of revenue and profits earned by the top 100 companies listed on the London Stock Exchange arising outside the UK, this should translate into a positive for our benchmark index.
Britain’s more domestically focussed businesses might have an altogether tougher time, so don’t expect the FTSE 250 Share Index to match the performance of its larger neighbouring measure. Of course, if against expectations MPs shuffle the leaving measures on the table through the House, it could be the 250 that trounces the 100 Share Index. It remains what happens on the world stage that will set the overall tone for sentiment and future performance, though.
Key, naturally, will be Trump’s endeavours on the trade front. The growing power of China is becoming something of an issue for our political masters. Already powerfully present in the resource rich African continent, their increasing involvement in the technology space is sounding alarm bells in the corridors of power. Here they are due to deliver the next generation of mobile phone technology and are also heavily committed to our nuclear energy programme. Expect more developments in these areas for the year ahead.
Forecasting is a mug’s game. The good news is that the retrenchment in equity markets has restored better value to shares. Moreover, bad days continue to entice buyers back into the market and Donald Trump has survived half of his initial term without any really major upset. His apparent spat with the Federal Reserve Bank seems to be more about distancing himself from stock market falls than attempting to interfere with monetary policy.
How the year ahead progresses is anybody’s guess, but extreme pessimism is probably overdone, unexpected catastrophes aside, of course. We can reasonably expect more shocks from the retail sector, take-over bids arising from unlikely places, continued pain from those companies that had profited hugely in the past from undertaking government contracts and technology to continue to grab much of the limelight. Roll on 2019. May all of you have a pleasant, peaceful, healthy and, hopefully, profitable New Year.
Brian Tora, who is a respected writer and broadcaster on investment issues, is a consultant to JM Finn. Brian has enjoyed a long and distinguished career in the City. Any opinions expressed are his own and should not be construed as advice from JM Finn. A version of this article may appear elsewhere in the press.