Market News

Market update - May

16/05/2017

Kate Rogers

Kate Rogers

Head of Policy and Co-Manager - Charity Multi-Asset Fund

Politics dominates headlines

Prime Minister Theresa May’s surprise announcement that there will be an election on 8th June has been welcomed by markets, pushing sterling higher against the US dollar. Analysts expect May to gain a larger majority and consequently more power to ignore those calling for a “harder” Brexit. Meanwhile, the UK consumer is starting to feel the pinch. The savings rate has hit a record low and retail sales have fallen sharply, increasing the likelihood that the economy will slow and making the election more urgent for the government. In Europe, the victory of Emmanuel Macron in the French presidential election proved welcome relief to markets concerned about the populist movement and the stability of the eurozone. Macron still has plenty of work ahead of him. As the founder of a new political movement he faces challenges in forming a government in the upcoming parliamentary elections. In the US, President Trump’s erratic leadership style continues to create much policy uncertainty and political risk, although strength in US earnings is supporting equity markets.

Make hay while the sun shines

Meanwhile global growth is expected to come in at 2.9% in 2017 (after 2.6% in 2016), led by the advanced economies; whilst inflation rises to 2.7% (from 2% in 2016), largely due to higher oil prices. With growth strengthening and core inflation rising, US interest rates are expected to continue to increase. Conversely, despite the sharp rise in UK inflation, we are not anticipating interest rate rises as growth is likely to slow. eurozone growth is more encouraging, although political uncertainty may hamper business investment. The Japanese economy is supported by looser fiscal policy and a weaker yen, but investor sentiment is currently dampened by an escalation in tension around North Korea. Emerging economies are likely to benefit from the growth in the developed economies, but US interest rate rises are likely to weigh on activity. We also expect concerns over China’s growth to persist, which is part of the reason for the recent volatility in commodity prices.

Equity market volatility near 30 year lows

Given these political and economic shifts, it is perhaps surprising that the equity markets are demonstrating such low volatility. Certainly we expect volatility to increase at some stage and are favouring diversification in our charity investment portfolios to protect against the worst of any market falls. Rising inflation is not good news for nominal assets. We remain underweight cash and bonds, preferring absolute return funds to provide the ballast to portfolios. Equity markets, which represent the core of our charity portfolios for long term investors, are benefitting from stronger economic conditions and positive corporate earnings growth. Alternative assets, such as property and infrastructure, provide attractive income and inflation protection over time and are included in portfolios where appropriate. Rising volatility may feel uncomfortable, but allows long-term investors to benefit from opportunities presented by any short term dislocations.

Author

Kate Rogers

Kate Rogers

Head of Policy and Co-Manager - Charity Multi-Asset Fund

Kate specialises in investment on behalf of charities, endowments and foundations and joined Schroders Charities in 2005 after four years with Kleinwort Benson Private Bank Charity team.

Kate is chair of the Charity Investors' Group, which is a membership organisation providing a forum for investment debate. In this role she has collaborated with CFG to launch a guide to written investment policies and 'For Good and Not For Keeps' published by the Association of Charitable Foundations in 2013. Kate also regularly writes on charity investment in the charity sector press.

Kate is also Portfolio Director at Schroders, where she manages a common investment fund, The Charity Multi-Asset Fund, which aims to generate a regular income for charities whilst protecting the capital against inflation over the longer term. She is a CFA charterholder and has a BSc (Hons) in natural sciences from the University of Durham, is Chair of her local community foundation, and governor of her local primary school.

  Kate Rogers

The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Limited 12 Moorgate, London, EC2R 6DA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored. 

Contact Cazenove Charities

Achieving your charity's investment objectives takes time and thought. To find out how we can help you please contact:

Giles Neville

Giles Neville

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John Clifton

Business Development Manager john.clifton@cazenovecapital.com