Macro Cocktail – State Of Play In Markets
Banque Transatlantique London Branch hosted its Macro Breakfast event at the Institute of Directors on Pall Mall. The fourth of a quarterly series of presentations, engaging clients and intermediaries on the state of play in markets and implications for investment strategy.
Chief Investment Officer, Robert Jeffree, reflected on the ten years since the failure of Lehman Brothers. In the investment environment, paradoxes have emerged. As the S&P 500 index reached record highs of over four times its intra-day low of 666 in March 2009, surveys showed investor confidence below the lows of 2008.
After the strong performance of nearly all investible assets in 2017, 2018 is proving to be more eclectic. Digging one layer beneath world equity indices, we see year to date returns conspicuously polarised between the US (positive) and the rest of the world (negative). The US economy is booming with rising disposable incomes, a 17 year high in the rate of people quitting jobs for better pay and prospects elsewhere and a record number of unfilled job vacancies. By contrast, the domestic Chinese stock market is now in bear market territory and many emerging markets find themselves in a negative spiral of currency weakness, rising interest rates and lower growth expectations.
Amongst the noise and volatility created by the trade war, Italian politics and Brexit it’s worth remembering that dispersion creates opportunity for active investors. In these sorts of environments, active management has increased potential to perform whereas global index trackers and the momentum style are literally last year’s winners.
Movements in currency will continue to be a key driver of returns. A change in the path of the strong US dollar could be the catalyst for a widespread rotation with opportunities created in emerging markets, value style stocks and gold. The mid-term elections in the US, potential easing of trade tensions and/or a refocus by investors on the twin deficits could signal the start of this trend.
The next Macro event will be held in January 2019.