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Weekly Notes

Weekly Note

The Week In Markets – 27 November – 3 December

This week saw the start of a new month, but it very much felt like the same old story, with COVID-19 fears escalating through the new Omicron variant and inflation data once again exceeding expectations. 

The biggest market-moving noise this week was driven by news flow surrounding the Omicron variant. Market volatility has been elevated with equity indices whipsawing on conflicting reports of the efficacy of vaccines, the severity of the symptoms and the likely impact on hospital capacity. It appears we simply do not have enough data to yet tell, but governments have acted quicker than previously, closing borders and reintroducing certain restrictions and rules. 

Eurozone data published on Tuesday showed inflation had risen to 4.9% in November on a year-on-year basis, which is a record high since the single currency was formed. We find ourselves in a unique position with inflation hitting decade or even multi-decade highs in various countries, yet interest rates remain near all-time lows, two things you would not expect to see occur at the same time. The most common explanation for this is that inflation is transitory and will pass through over the next 12-24months without the need to raise interest rates (too significantly at least) to control inflation. The transitory nature took on a new dynamic this week with US Fed Chair Jerome Powell stepping back from his transitory narrative and acknowledging “Inflation has been more persistent and higher than we’ve expected”. This has cleared the way for a potential speed up in US tapering and accelerated views that US interest rates may rise next year. On the back of Powell’s comments, we saw the US dollar strengthen, bond yields rise (therefore prices fall) and equities fall. 

The oil price has been hit particularly hard over the past week or so on fears over potential lockdowns due to Omicron and the impact this would have on oil demand. A meeting this week with OPEC and other nations was therefore very timely, with many expecting the group, known as OPEC+, not to increase production. However, they agreed to raise production by 400,000 barrels a day from January, but also announced they would consider cutting production should further restrictions be put in place. This caveat to the increase seemed to do the trick, with oil prices actually ending higher by the close of business, despite the headline increase to production. 

The first Friday of the new month sees the release of US Non-Farm Payroll (NFP) data. It showed an additional 210,000 jobs added to the workforce in November, however, this was considerably below the consensus of 550,000. The unemployment rate fell from 4.6% to 4.2% and average hourly earnings nudged up 0.3%. 

It’s been a slow start for equities in December, a month that is typically strong for stocks. While equity markets have been weak, we’ve seen other asset classes such as government bonds and gold start to perform a little better in this heightened risk environment. We continue to blend asset classes in portfolios to diversify risk(s) and smooth the overall return profile. 

Andy Triggs | Head of Investments, Raymond James, Barbican

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

Weekly Note

The Week In Markets – 20 – 26 November

If I had written this round-up yesterday my opening paragraph would have referenced a relatively benign week in markets, with minimal volatility in asset class prices. Fast forward to this morning and we can now delete that opening sentence.

News broke yesterday evening of a new potential variant of COVID-19, which potentially is immune to prior infection and vaccinations. The epicentre for this new variant appears to be South Africa and governments are already ‘red listing’ countries that appear to have cases. It is still very early in the assessment of the mutated strain, with the World Health Organisation (WHO) meeting today to examine it further. On Friday morning it was clear that equity markets would not wait for more data and there was a severe sell-off across global bourses, with markets such as the UK opening down around 3%. Stocks expected to struggle more in a potential lockdown bore the brunt of the sharp falls with British Airways falling around 10% and cinema operator Cineworld off 5%.

The beneficiaries of the short-term risk-off environment were traditional defensive assets, such as government bonds and gold. While these asset classes have struggled for much of 2021, they rallied strongly on Friday morning with the gold price up over 1% and government bond yields steeply falling (and therefore prices rising). It’s moments like this that remind us of the need for diversification in portfolios. In isolation, we, as an investment committee, are not particularly positive on the outlook for developed market government bonds as a stand-alone asset class, but we do value their diversification properties and their ability to perform in times of equity market stress. Today is a timely reminder of that.

Oil markets have been in the news this week with US President Biden aiming to lower the price of black gold, which has been on the rise this year. His failed attempts to get OPEC to pump more oil have led the US to release 50 million barrels from their reserves onto the market. This level of reserve release is unprecedented and nearly twice as large as any previous US inventory release. Despite the extra supply hitting the market, oil prices actually rose at the start of the week. Biden’s wish for lower prices did appear to be granted on Friday morning however with COVID-19 induced fears driving the price down by around 6%. 

Economic data was mixed this week with strong manufacturing data in the US and UK offset by slightly weaker durable goods orders in the US. The strong manufacturing data did fuel inflation and growth expectations and we witnessed US government bond yields rise during the start of the week to reflect this. 

Next week ushers in the start of December, a month that is typically positive for equity markets, known by many as the “Santa rally”. The backdrop for this seemed set, until this new potential variant emerged. 

Our investment approach and portfolio construction aim to ensure that there is a diverse blend of assets held in portfolios, some of which act as a type of portfolio insurance on difficult days like today. Our long-term investment time horizon also allows us to potentially look at days like today with a level of optimism, as there could be short-term mispricing which creates opportunities for long-term investors. 

Andy Triggs | Head of Investments, Raymond James, Barbican

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

Weekly Note

The Week In Markets – 13 – 19 November

Over recent years many of us have become accustomed to “Black Friday’” – the day after Thanksgiving where retailers offer discounts to mark the start of the Christmas shopping period. Although we are still a week away from this event, it seems the Friday before is now becoming “early Black Friday” with many discounted prices already appearing today. 

It seems fitting then that we start this week’s round-up with the consumer. Here in the UK data published today showed that consumer confidence rose in November, despite the headwind of rising inflation. This was coupled with retail sales growing by 0.8% month-on-month, bucking the trend of recent declines. Retailers have reported that Christmas trading has begun early and could be a signal of bumper spending by the UK consumer over the period. A strong consumer normally translates into strong GDP for a country, given that around two-thirds of developed-world GDP is derived from consumption. 

Staying with the UK, we once again need to mention inflation. The consumer price index (CPI) rose by 4.2% in October from a year ago, reaching a 10-year high. This figure, like the US inflation print last week, came in ahead of analyst expectations. With the Bank of England Monetary Policy Committee holding fire on raising rates at their previous meeting, attention is now turning to the December meeting where there is a rising expectation that UK interest rates may increase. However, this is not guaranteed, and it is fair to say that at least some of the inflation we are experiencing is due to pent-up demand in pockets of the economy, which will likely abate. We also need to be aware of the presence of base effects; comparing data to October 2020 when the economy was very fragile.

COVID-19 cases continue to rise in Europe, which now once again becomes the epicentre for the virus. Austria has announced a full national lockdown starting from Monday, which will run for a maximum of 20 days. Germany has announced further restrictions for the unvaccinated as infection rates hit record highs. European stock markets have proved resilient this week to the news, with investors looking through the short-term measures.

It’s been a while since we covered the Japanese economy in the weekly round-up. Japan has been a laggard this year when compared to its developed market peers from both an economic and investment returns standpoint. Mindful of the sluggish growth, benign inflation and low consumer confidence, the supposed fiscally prudent Prime Minister Kishida has announced a huge $488bn stimulus package to help offset the damage caused by COVID-19. At a time when other nations are slowly pegging back stimulus measures, Japan appears to be bucking the trend. This additional fiscal stimulus could boost prospects for the country; while we have exposure to Japanese equities in the portfolio, the Investment Committee will continue to ensure the level of exposure is suitable. 

Having recently increased US allocations in client portfolios it is pleasing to see the US market continuing to grind higher, hitting new all-time highs this week. Stellar results from chipmaker Nvidia and upbeat news from retailers helped push the US bourses to new highs. While US equities are currently a core of our equity component in portfolios, we continue to diversify across geographical regions and sectors, blending active managers with passive strategies. 

Andy Triggs | Head of Investments, Raymond James, Barbican

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

Weekly Note

The Week in Markets – 6 – 12 November

The 26th UN Climate Change Conference of the Parties (COP26) continued this week, with Friday marking the final day of the conference. The positive start to the conference appears to be coming to a head today, with delegates rushing to agree on plans to cap global temperature increases to 1.5C. The fall-out from COP26 will impact the world both from an environmental standpoint but also an economic one. It’s clear that the efforts to shift to a more sustainable, green footing, will create both opportunities and threats for various sectors and companies. 

Concerns around inflation seem to have plagued markets all year and recent data out of the US has done little to dampen investor concerns. Only last week we saw markets switch and push out their expectations for interest rate rises on the back of an apparent shift in central bank positioning. However, that position was immediately challenged with US CPI reported at 6.2% on Wednesday, the highest level since 1990. The higher-than-expected number led to US Treasuries (government bonds) once again selling off and the US dollar strengthening on a global basis. High levels of inflation will prove problematic to consumers, who will face a squeeze on their real spending power. Central banks globally will be forced to act if inflation turns out to be more persistent and not transitory. 

UK equities have lagged behind US and European equities since the Brexit referendum in 2016. Despite what appear cheap relative valuations, investors have largely stepped away from the market, concerned about the increased risks Brexit has created for UK companies. However, this could be beginning to change, with the UK large-cap index hitting a 20-month high this week. The rise in the index coincided with news that the US investment bank JP Morgan had upgraded UK equities to ‘overweight’ for the first time since 2016.

It’s been a while since we covered COVID-19 in these weekly updates, however, rising cases in Europe and a three-week partial lockdown announced in the Netherlands this week mean it is back in focus for investors. The Dutch are going to be closing bars and restaurants early while sporting events will be played without crowds.

Climate risk, COVID-19 and rising inflation are just some of the issues challenging investors currently. Despite this, we have seen very resilient equity markets, with strong performance over the last month or so. Our focus continues to be attempting to look through short-term noise and focusing on long-term opportunities while ensuring there is sufficient diversification in portfolios to help protect against some of the known (and unknown) risks highlighted here.

Andy Triggs | Head of Investments, Raymond James, Barbican

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

Weekly Note

The Week in Markets – 23 October – 29 October

Right. I didn’t want to do this, but we need to talk about gilts. Because in a week in which most market movements were all a bit “meh”, gilts (a.k.a. UK Government Bonds) stand out as having had an unusually dramatic run. What happened?! I hear you gasp. Well – hold onto your hats – on Thursday the UK’s 10-Year Gilt yield dropped by 0.13%!

Yes; you’re right. It is odd what passes for drama in the investment world. It’s hardly Cup-Final penalties, is it? This is why I avoid writing about gilts. It takes me back to the confusing days when I was learning my trade, sat next to grizzled professionals who’d take an apparently bland statement like that and read a Nabokov novel’s worth of meaning into it (I just nodded and kept quiet).

But today I grasp that nettle. Firstly the size of the move: It doesn’t sound like much, but when you start with not much, not much can make a big difference. And the gilt yield started the day at 1.11%, and dropped to 0.98%. That equated to a c.2% move in the gilt index over the day – the largest part of an almost 4% move over the week. Remember that bonds are supposed to be the tortoises to the hares that are shares (now there’s a Dr Seuss book just begging to be written). But UK equities only shifted by 0.9% on the week, a polarity reversal that tells you something unusual happened.

That was the size of move, now let’s talk direction. Yields falling sounds like bad news, right? We don’t like it when things fall. But “yield” is on the other side of a simple equation to “price”. So when yields have dropped, it means prices have risen (the third part of that equation is “income”, which in gilts’ home world of fixed income is – as the name suggests – fixed)(unless it’s an index-linked gilt, but let’s not go there). So, can we take it that prices rising by 4% in a week is actually good news?

Nope. OK; it is if you hold gilts. But one of the main reasons for holding gilts is that their prices go up when a piece of bad news makes most other markets go down. This is because, in a recession, they’re seen as a safer place to park cash than shares, so if they think there’s trouble ahead, investors sell shares and buy gilts. So when you see that gilt yields have fallen, and therefore that their prices have risen, you can usually assume it means bad news.

So this was bad news after all? Well, maybe. Thursday was Budget day, so we might assume that markets hated the budget, believing it’s more likely to hurt economic growth than help it. I think there’s some truth to that: UK shares, whose prices do drop on bad news, fell on the day. However, it’s not that simple (I’m really sorry about this). Rishi Sunak also announced that, because economic growth had been better than he’d feared (good news!), he wouldn’t need to issue as many new gilts as he’d thought, thereby reducing their supply (economics 101; lower supply equals higher prices).

So, there you have it (clear as mud): Hopefully (but not entirely) a one-off technical thing, which means I can return to the usually-more-interesting, and simple, movements of share prices instead.

Have a great weekend,

Simon Evan-Cook
(On Behalf of Raymond James Barbican)

 

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.

Weekly Note

The Week In Markets – 16 October – 22 October

Instead of headlines proclaiming “10% wiped from value of computer giant”, “S&P closes at record high” was the headline splashed across many investment outlets on Friday morning. 

After ebbing and flowing for the last six weeks, the US S&P 500 index closed at a new all-time high on Thursday evening. It may surprise many to learn that this was actually the 55th all-time high of 2021 for the large-cap bourse. Investors have been encouraged by a strong start to Q3 earnings season, with most companies that have reported beating earnings estimates. It wasn’t the case of “a rising tide lifts all boats” however, as IBM’s share price fell around 9.5% on Thursday after missing revenue targets. 

Data released on Wednesday showed that UK inflation slipped to 3.1% in September, from 3.2% in August. The slight dip has done little to deter investors’ from believing that the UK will be the first major central bank to lift interest rates. While many of us have become accustomed to falling rates over the last decade or so, 2021 has bucked that trend with countries such as South Korea, Norway, Brazil and Chile already hiking interest rates. 

Evergrande, the Chinese property behemoth which caused turbulence in markets in September, returned to the forefront of investors’ minds this week as its proposed $2.6bn asset sale was abandoned, stoking fears of the company’s ability to meet debt obligations without this injection of cash. While the exposure to China in our portfolios is minimal, China is now the second-largest economy in the world and therefore what can appear as domestic issues can spill over into global markets and as such a situation we continue to monitor.

With inflation fears and a more optimistic growth outlook returning, bond yields continued their march higher this week. Despite the moves, the German 10-yr bund still has a negative yield of around 0.08%, although this is the highest level it has been over the last 12 months. 

As we look ahead to next week the big news on domestic shores is likely to come from the Autumn Budget, taking place on 27th October. The budget can create volatility in UK stocks, particularly if there are unexpected announcements. It is something we will follow closely and look forward to covering next week. As always, we will be looking behind the headlines to get to the detail and understand the impact.

Andy Triggs | Head of Investments, Raymond James, Barbican

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

Weekly Note

The Week in Markets – 9 – 15 October

If you find discussions of employment rates and wage inflation uninteresting or even dare I say it boring you have our sympathy. I’ve heard that many people in the Treasury have a similar view. However, their importance to the global economy and in turn to our clients cannot be underestimated, so I would ask you to persist and read on.

With that in mind, we will start with the UK; unemployment dropped to 4.5% and average weekly earnings were 7.2% higher compared to 12 months ago. Many believe this will be enough to force the BoE to raise interest rates, possibly as soon as December. However, the slight complication here is that these figures are skewed by both the furlough scheme, which closed at the end of September, and the fact that we are comparing wages to last year when they were heavily impacted by COVID-19. The reaction to this data in bond markets was muted and we have seen yields fall (prices rise) this week across most developed nations following a period of rising yields. Staying with the UK economy, GDP data highlighted that the economy grew by 0.4% in August and is now only 0.8% below the level it was pre-COVID in February 2020.

Inflation has been a topic we have covered frequently over recent weeks and Wednesday’s US CPI figure of 5.4% means we need to spend a bit more time on the subject. If we drill down into what was contributing to the higher than expected inflation print this week, we can see that rent and food costs were key drivers. For the average person, this can pose problems as both shelter and food are typically necessity goods that consumers simply must buy. Higher prices here will mean many people need to cut back spending in other areas of the economy. It may also encourage individuals to push for higher wages or look to move to higher-paid jobs to make sure their spending power keeps up with inflation.

The International Monetary Fund (IMF) released their latest World Economic Outlook report this week. For readers that like detail, the full report can be found on the IMF website – but be warned it is 172 pages long! In brief, the IMF still see the global economy in recovery mode, even if the delta variant has caused COVID-19 induced problems to persist. They did slightly downgrade their world growth expectations for 2021 from 6% to 5.9%, citing COVID-19 and supply disruptions as two causes. On the positive side of things, a firmer commodity pricing environment should see better than expected growth from the commodity-exporting nations.

In this data-heavy week, we have seen most global equity bourses move higher. The UK market has been particularly strong, driven by a firming commodity price environment as well as a high weighting to financials, which have performed well on the prospect of interest rate rises. Our portfolios are global in nature, and while we are exposed to markets such as the US and themes including technology, we also have meaningful exposure to the UK market and include themes like resources, which have been strong this week.

Andy Triggs | Head of Investments, Raymond James, Barbican

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

Weekly Note

The Week in Markets – 2 – 8 October

The challenge in writing a weekly note is that most subjects don’t start and finish in a seven-day period; economies and markets are fluid and continuous, with events taking weeks, months or even years to play out. Over the last couple of weeks, we have written about inflation and its effect on bond markets, of rising gas prices and of a lack of direction in equity markets and these subjects are still as relevant this week. For good measure, we can now also add to the mix a Facebook blackout and US debt ceiling concerns to the headlines.

New Chief Economist for the Bank of England (BoE), Huw Pill, warned this week that inflation in the UK may be higher and last longer than originally anticipated, in part driven by rising energy prices and a continued global supply shortage. Earlier in the year investors assigned around a 10% probability to UK interest rates rising by March 2022, this week the probability had risen to around 90%. The likelihood of two interest rate hikes by May 2022 has moved from less than 10% just four months ago to around 80% today. Whether we are witnessing a structural shift to sustained higher interest rates and inflation, or whether this will be a short-term hiking cycle (more akin to 2018) is unclear currently. As investors, we need to think carefully about portfolio construction and the mix of assets we would want to hold if the 30+ year bull market in bonds is finally over.

Facebook has evolved into so much more than just a social-media company and while a few hours break from Facebook, Whatsapp and Instagram may have been welcome by many, it was a source of lost revenue not only for the company, but for many businesses who use their platform for sales and marketing. It is estimated that it cost the technology giant around $100m in lost revenue as well as wiping off nearly $50bn of equity value at one point. The outage interrupted business, Government communications and, in some developing countries blocked access to the wider internet. It was interesting to read that due to the firm’s work from home policy many remote engineers were not able to communicate with the staff in the data centres and caused the crisis to drag on longer than it should. Some reports suggested that the outage even locked staff out of buildings and data rooms as the system linking door security to work permits failed. The domino effect both locally and globally should be a wake-up call.

On Friday we woke to the news that the US Senate voted in favour of extending the debt ceiling, allowing the nation to meet its liabilities and continue to borrow. Janet Yellen was vocal in the run-up to the vote, stressing that if the debt ceiling was not extended it would have severe implications for the US economy.

US non-farm payroll jobs data was released on Friday afternoon. The data showed 194,000 jobs had been added to the economy in September, below estimates of 500,000. Unemployment in the US fell to 4.8% and with a considerable amount of job openings coupled with elevated consumer demand we can expect unemployment to fall further over the remainder of 2021.

Further East (or West depending on which direction you are travelling and from where) China and Russia both appear to continue to be influencing a rise in gas prices. Russia is rumoured to be restricting gas supplies as part of a strategy to encourage EU countries to approve Nord Stream 2; their new Baltic Sea pipeline. Gazprom, Russia’s gas export monopoly supplies a staggering 35% of European gas needs. It’s alarming how reliant Europe has become on one nation (Russia) for its gas needs. In January, China recorded its lowest temperatures since the 1960s leading to widespread power cuts. To avoid it happening again this winter, the Xi government has ordered its state-owned energy firms to secure gas supplies for this winter “at all costs” which is fuelling the energy price crisis across the globe.

This week’s news and recent events highlight the increasing reliance we have on the Superpowers of China, Russia and the US as well as the superpowers of the technology giants; something we need to keep a watchful eye on as individuals, business owners and investment managers.

Andy Triggs | Head of Investments, Raymond James, Barbican

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

Weekly Note

The Week In Markets – 25 September – 1 October

Persistent or transitory inflation, that is the question. It’s actually been the question for most of the year and this week was no different, as it appeared the persistent inflation bulls had the upper hand, fighting back after the summer months were won by the transitory inflation camp.

The obvious short-term forces of supply chain bottlenecks, energy shortages and a rebound in demand from the pandemic induced lows are helping stoke inflation, but the longer-term inputs of a move away from globalisation, continued government spending and wage inflation are providing fuel for the persistent inflation believers. The higher inflation expectations have impacted markets this week. US government bond yields have risen (prices therefore fall) to levels last seen in June, while UK gilts and European government bonds have also seen their yields move higher. Equity markets have been bumpy too; stocks which are more correlated with bonds have retreated, while sectors such as energy and financials have proved more resilient.

German elections took place on Sunday, with Angela Merkel stepping aside after 16 years as Chancellor. Her party, the Christian Democratic Union, performed poorly, losing significant votes from previous elections. With no clear party winner, a coalition government is likely, yet we still do not know how that will look. Given Germany’s economic power within European markets will be watching proceedings very closely indeed. 

On domestic shores the petrol shortage has continued to rumble on, snatching the headlines from the gas crisis that we’ve also been experiencing. The energy crisis facing the UK is fast becoming a global problem, hitting the world’s second-largest economy, China. Reports of factory closures and power rationing will undoubtedly feed through to weaker economic data in the coming months while also increasing supply issues, given China’s role as the manufacturing heartbeat of the global economy. 

There was some positive news to end the week, with the UK economy growing faster than anticipated in Q2. Data on consumer savings also highlighted that we are continuing to save at elevated rates. These savings will likely be spent in the real economy as consumer confidence returns, meaning we could see further upside surprises to UK growth. Increasing consumer demand at a time when supply issues are apparent would do little to dampen the persistent inflation camp!

Andy Triggs | Head of Investments, Raymond James, Barbican

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

Weekly Note

The Week in Markets 18 – 24 September

After a fairly benign summer period, all of a sudden there feels a lot to cover in the weekly note. From gas shortages to Chinese property concerns to hawkish central banks, it’s all happened this week. Despite many of these headlines, equity markets have climbed the wall of worry in the middle of the week, quickly rebounding from the sell-off on Monday.

On domestic shores the UK gas crisis continued with further energy companies collapsing, meaning nearly two million homes have lost their supplier this year. The cost of gas for suppliers has spiked by more than 250% in 2021 and, unable to pass this increase straight through to customers, many firms have run into difficulties. While there are short-term drivers for the rise in gas prices, including unusually low wind speeds, a lack of investment in the gas industry has also caused structural problems. It’s an interesting case study and one we may witness again over the next decade with oil and commodity prices. We have been through a period of underinvestment in these sectors, for various reasons, and while the hope and target is to move away from fossil fuels, we have to question whether the infrastructure and technology are currently in place to do this. If not, we may find that our planet still relies on oil at a time when there has been little investment in the space, which is likely to lead to supply shortages and spikes in prices. For investors, this can create opportunities. 

It was a busy week for central banks, with both the UK and the US deciding to keep interest rates at current levels. While this may sound fairly dull, the language and messaging used by central banks has impacted the bond markets. Both were fairly hawkish in their statements, showing concerns around inflation, which may lead to them increasing interest rates earlier than the market has priced in. Towards the end of the week, we saw government bond yields rise (and therefore prices fall). It may be worth noting that Norway increased their interest rates by 0.25% – the first G10 nation to do so – which acts as a reminder that ultra-low interest rates may begin to normalise over time. 

Chinese equity investors have had a rough ride in 2021 as political and regulatory risk has come to the fore and dented many sectors. Despite China being the second-largest economy in the world, we have always been mindful of the weaker corporate governance and potential regulatory risk; this has held us back from having a dedicated China exposure in portfolios. Chinese property firm Evergrande appeared to miss interest payments on a portion of its bonds this week, stoking fears that a default is imminent. The company has a significant amount of debt and there are concerns that this could spill over to other sectors, such is the reach of the debt pile. This comes at a time when we have seen the Chinese government clampdown on the education, technology and healthcare sectors as China pursues a ‘common prosperity’ goal. While the fall in the Chinese stock market is of interest, it is very hard to know how deep or far this government intervention will go, and as such we are happy to allow our emerging market fund managers to use their expertise and be very selective with their allocations to China. 

The issues facing global markets this week act as a timely reminder that risks can appear quickly and often without warning. Portfolio diversification is critical to help mitigate risk and smooth returns and we will continue to focus on this. 

Andy Triggs | Head of Investments, Raymond James, Barbican

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

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