June/11 - Markets – What’s been happening?
Over the last 6 months the financial markets have been fairly flat. A phrase has been in use ; ‘soft patch activity’. This refers to the global slowdown, mainly because sales have been weak. If I were a betting man I would anticipate this to end at the beginning of the autumn, and then a recovery to start to take shape. This will possibly happen due to oil prices starting to stabilise and inflation starting to fall back a little.
Greece – Europe – And Beyond
The Greece situation has had a negative effect on the World’s Stockmarkets recently, just as it did in 2010. Greece is highly unlikely to be able to repay back all its loans, interest rates are already 20% in Greece, and taxes have been raised significantly. The continuing fears of default are a major concern for the World’s Stockmarkets.
More recently, similar debt concerns have surfaced in Spain and Italy.
UK – And Interest Rates
In the past the UK government has reduced debt on the back of a strong and buoyant economy. At times of increased prosperity and rising house prices the government can get away with raising taxes. We are not in this situation at this time. The economy is very weak.
Clients that I have spoken to for several months now will recall my prediction that interest rates will stay on hold. Even as far back as March when it seemed a foregone conclusion (to the media anyway) that rates would go up in May I was telling people I did not think they would increase.
Why? One reason is because the economy is too weak. Any increase in interest rates will further reduce sales and that will almost certainly send us back into recession. Another reason is that the inflation figure of 4.5% is not as bad as some would make you believe. It is made up of VAT increases and high commodity and fuel prices. So until the economy starts to strengthen expect interest rates to stay on hold.
So where does that leave us?
Surprisingly it is the emerging economies that have struggled over the last 6 months, with the developed economies outperforming them.
If you look at the Simple Solutions Model Portfolios for an ISA Risk Profile 5 for example there is 20% of this portfolio invested either in the Far East or Emerging Markets. For a Risk Profile 7 this figure rises to 30%. This is why the performance of our portfolios has been a little sluggish over the first part of 2011.
Have we got it Wrong?
No. Definitely not! If anybody is in any doubt about the economies that will drive the world economy over the coming years let me remind you:
Simple Solutions view is that it will be China, India, and Brazil to name but three. We have certainly witnessed a slight slowdown over the last 6 months but in the longer term it will be business as usual. We are very confident that our funds that we have selected in these geographic sectors will start to perform at the kind of levels that we have previously enjoyed.
Watch this space!
If you would like to arrange a meeting with one of our Advisers to discuss how we can help you please contact us.