After a solid start to the year, global equity markets have encountered rather more volatile conditions of late. Generally, company profits announced this year have been positive, and dividends are for the most part slightly higher. However, the ongoing dispute over trade between the increasingly protectionist USA on the one hand and the State directed economy of China on the other has combined to cause the prospects of global growth to diminish.
In efforts to limit the impact, a number of central banks have again resumed cutting interest rates, on the basis that cheaper money facilitates economic activity. With interest rates already extremely low, banks are considerably constrained. Our view is that in the end a degree of common sense will prevail in respect of global trading issues, however equity market volatility may reasonably be expected to continue for the moment, providing opportunity for long term investors.
In so far as the UK is concerned, the value of Sterling continues to fall against other major currencies as the Brexit saga continues. Equity investors have enjoyed considerable protection against this as a consequence of the higher Sterling value attributable to overseas earnings, in turn reflected in both share prices and in dividends. Companies with largely UK focussed activities have, on the other hand, found conditions working against them with no immediate end in sight.
On balance, we remain overweight in equities where client risk parameters allow.