Three reasons to be cheerful

David Miller, Investment Director, Quilter Cheviot

November 2015

In August 2015, the global markets were volatile, and understandably so. Uncertainty over whether the US was going to raise interest rates and concern over just why the Chinese were so keen to allow their currency to depreciate spooked many. Global equities depreciated and dwindling energy and resources also contributed to a melancholy atmosphere on the trading room floor.

These jitters continued into September when the Federal Bank fluffed its lines and chose not to put up rates, leading to further speculation about the reasons behind this. Combined with commodities group Glencore’s recession-like crash and Volkswagen becoming mired in the doldrums, it’s no wonder that many investors remained on edge.

It is too early to say that the currents of instability have settled but there are reasons to be optimistic. For example, while it may have been America that was spooking the markets in the summer, activity across the pond is now buoying investors.

1. Good things are happening in America

What happens in America has an impact globally, and when put under the microscope, there is clearly not much wrong with the American economy. There are more people in employment and they’re being paid more. There are a million fewer homes in negative equity than at the start of the year. And this is translating into the sort of confidence that gets consumers reaching for their wallets; the proof of the pudding is in the eating with restaurant sales are up 8% year on year. Wages are rising and given the fact that seven out of eight US jobs are related to their domestic economy, this is very good news indeed – the sort of good news that stabilises markets and benefits the global economy.

2. The central banks are steady

There are also reasons to be cheerful when you look at the work of the central banks. The US may put up rates but the Bank of England will be slow to follow suit and the European Central Bank seems content to do whatever it can to generate growth. Fears that 2016 will bring with it another recession seem to be abating.

3. The UK is on the up

The UK too, is on the up. Away from scaremongering headlines, we have an open economy, a capable government, a competent central bank, a free-floating pound and a robust legal system that does what it ought to. We also have companies that have spent the past 30 years toughening up; and that have weathered many financial storms by staying professional, staying competitive and creating good products that people want to buy. This combination of a stable financial background and some great companies means that the UK certainly has a part to play, not only in a domestic portfolio but also for people looking in from outside. This all adds up to creating a shareholder friendly environment, with leading companies paying significant dividends.

But how long can we expect this to carry on?  When considering prospects for the year ahead, we’re optimistic about investing in equities as opposed to other asset classes. Linking investments to consumer confidence and spending in the West may also be no bad thing in the next 6-9 months. The big question, of course, is how long this feel-good factor will continue.

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