Q2 2019 MARKET UPDATE

Investment & Wealth Advice




SUMMARY

John Butters, Chief Investment Officer

Following another good three months, global stock markets ended the month of June with a return of about 16% for the year to date. However, the eyes of investors are fixed on the future rather than the past, and in particular on Brexit and new tariffs (taxes on international trade) in the USA. We cannot forecast what effect these things will have on the markets – nobody can. But we can try to look through the media noise and give a sense of how bad they might really be.

TARIFFS, BREXIT & THE EFFECT ON YOUR PORTFOLIO

First, tariffs. The Bank of England estimated the impact of the current tariffs in its August Inflation Report. Global growth is expected to be reduced by 0.2% over three years. If we guess that the new tariffs announced at the start of August will double this effect, tariffs will still only have a GDP impact of about 0.13% a year for the next three years. In other words, in spite of the political noise, their effect on the world economy seems likely to be small.

The impact of Brexit on the UK could be more significant. In its World Economic Outlook in April, the International Monetary Fund analysed the possible effects of a no-deal Brexit under various scenarios. In July, the Office for Budget Responsibility (OBR) used one of these – assuming no border disruption and a year-long adjustment arrangement with the EU before full tariffs were imposed – and found that the UK economy would shrink for a year, by 2.1% in total, before starting to recover. That is “the same as in the early-1990s recession but only about a third of what was seen in the financial crisis.” In other words, a no-deal Brexit would probably mean an ordinary recession for the UK. The effect on the global economy would be small: World GDP is reduced by 0.04% in 2019 and 0.09% in 2020 in the IMF’s model.

Although a UK recession would not be welcome, investment portfolios could actually benefit in this scenario. UK bond prices might well rise, and the pound would probably decline, leading to an increase in the value of foreign assets in Sterling terms. It is therefore possible that your portfolio could see an uplift in value in a no-deal Brexit – just as happened after the referendum in 2016.

WEATHERBYS & YOU

At Weatherbys Private bank, we offer investment advice.  When clients come to us looking to invest, we will occasionally recommend an active investment manager. What we will always do is recommend to our client that they choose the solution which will keep costs down.   For this reason, many clients find that a portfolio of tracker funds is the right option.  We help them create the right balance of tracker funds in their portfolio and then ensure that it doesn’t drift over time. And, true to the low cost philosophy, we don’t charge a penny for this service.

FIND OUT MORE

Past performance is not a guide to future performance. The value of an investment and its income can both increase and decrease and you may not get back the full amount originally invested. The value of overseas investments will be influenced by the rate of exchange.

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