Its Not Harry

Comment and opinion for retail investors in the UK

Asset Allocation

Watching Brief – February 2024

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Geo-political scariness

Assessing the likely direction of stock markets always requires a multi-faceted approach.  One needs to be aware of the main macro economic trends within each major geographical region (broadly North America, Europe, the UK, the Asia Pacific region and Japan). 

Things like GDP growth levels, interest rates set by central banks and consumer and producer optimism indices will always get a mention in analysts’ and strategists’ presentations, and as context and drivers of market mood, these are important.

However, economics is an inexact ‘science’ and that sort of data is only useful to the extent that it becomes accepted wisdom and will drive market behaviour.  For example, a general consensus (which is the best you are ever going to get) that interest rates are going to come down will result in changes in the bond yield curve and that will have an impact on valuations.  If rates do not come down after a long wait, then the consensus will change and that will have some sort of impact.  This is just an example of a ‘macro’ factor impacting valuations and feeding into asset allocation decisions.

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Watching Brief – September 2023

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Pottering About

Cloudy crystal ball?

My ‘we’re past the worst’ assessment at the start of last month looks to have been woefully optimistic on the basis of August’s stock market returns, although as I begin to write this with a few days of the month remaining, valuations are heading back up.

What is rather odd is that there has not really been any new macro economic news to deflate the optimism that prevailed in July but indices are showing that markets more or less gave back the gains they made then.  It is just possible that investors in the important US markets simply decided to book gains ahead of the usual ‘back to work’ re-assessment that usually happens in September before the always important and generally risky run to the year end. But maybe there are other reasons?

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Midweek Musings – Coughs and sneezes?

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You probably know the old stock market axiom: When America sneezes, the world catches a cold. It seems reasonable that problems in the world’s largest economy are likely to have an infectious impact on at least its main trading partners.

I am not sure anyone has ever transposed the world’s second largest econony, China into a similar adage. Maybe this: When China coughs the world gets a pandemic. Too much irony?

A chill wind from the East is going to be noticeable this season.

I have written about problems in the Chinese economy several times this year and my take on how that impacted asset allocation calls. I have excluded China focused funds from my portfolio and gone even further in reducing weightings in Emerging Markets and Asia Pacific because of the risk of local contagion.

There are of course some funds in these sectors with no direct China exposure and they have been doing rather better recently but my comment about the impact on main trading partners remains applicable, I suggest.

What we saw at the start of this week was something I think is new – global markets in general sold off solely because the (not new) bad news from China was at the top of news feeds.

We can expect the Chinese government, with its advantage of autocracy in economic policy, to take steps to ensure that Mr Xi can say his growth targets have been met. Unlike Mr Sunak in the UK, he has virtually no risk of not seeing his targets met because if necessary he can change the way the statistics are published, as has just happened with youth unemployment data in China (it has vanished from official published counts).

However, many economic prognosticators will have built their models for global ecomic growth on the assumption that China would likely boom coming out of zero Covid. Not only does that look highly unlikely now, but there is a more serious property crisis emerging that could have domino effects on financial markets in China and even beyond – emerging market bond funds, for example.

This is what has troubled markets this week and adds to a febrile August to date. However, August often seems like that to me and it is probably one of the least useful months of the year in which to take the temperature of markets. So don’t panic!

Watching Brief – August 2023

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Pottering About

Past the worst?

Looking at my 3 personal portfolios (UK Sterling SIPP, UK Sterling collectives and Euro collectives) I note a noticeable flattening out of what had been a longish mostly downwards line on the valuation over time graph. 

In fact, July was a month of modest gains overall, with the best results in the Euro portfolio, suggesting that over the month Sterling may have appreciated a tad against the currencies underlying the largest holdings I have in my UK pots.

I reckon we are seeing the start of a turnaround….

I cannot of course guarantee it, but my feeling is that early Summer 2023 may be the inflection point when the bear market that started some time in late Autumn 2021 and which has had stuttering false recoveries comes to an end. 

There are plenty of predictions of better economic growth and ‘soft landings’ and unsurprisingly (at least to me), corporate profits are in the main on the up, thanks to the consumer being suckered with price increases, quietly approved of by governments and central banks whether justified or not!

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Midweek Musings – some more quiz answers

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I could not think of anything connected with markets and investing in the current climate to write about this week. I have plenty of ideas, but I have not go very far in developing them so that they would be useful to investors and worth giving up your time to reading!

I will confine this week’s post to answering two more linked questions in my June quiz.

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Watching Brief – June 2023

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Pottering About

No result yet in the market tug of war

The market moves up and down at the moment as it reacts to conflicting data

As I started to write this month, at least one potential crisis had passed with an outcome that markets will find acceptable.  The US politicians have reached an agreement (subject to Congressional approval) on funding the US public debt for a full 2 years more.

Bad news is the fact that the war in Ukraine is building up to a critical point and we cannot know what the consequences will be.  Plus, a welter of news from China suggests that it has economic problems on a scale not anticipated and which the Chinese Communist Party (CCP) may have trouble managing.

The push me/pull you trading in markets that we have seen this year is further sustained by the news that recessions might be avoided in some developed markets (good) but that means interest rates will stay higher for longer (bad).

For once there is some genuinely good news about a major business, which will be owned by many funds popular with readers, doing exceptionally.  This is Nvidia, the tech company set to benefit hugely from the rush to invest in AI.  It is looking like another Tesla for the moment, which means it will likely end in tears, but we can hope our fund managers will ride the bandwagon and book some profits.

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