First Quarter 2017
As At 31st March 2017
The first quarter of 2017 has shown continued strength across all asset classes, and the gradual ‘grind’ higher is in sharp contrast to what we saw this time last year, when investors sold equity markets in particular, as the rout in commodity prices continued. Investors were also then concerned about a slowing China and the ramifications that had for its neighbours and for the global economy. However, both these issues have since stabilised. Volatility has fallen sharply in most markets.
Clearly what we know now, that we didn’t know a year ago, is that the UK would vote to leave the EU and that Trump would become the 45th President of the USA. Both these events have not derailed markets in a way that we, and others, might have anticipated. Selectively we have seen both the positive and negative effects of these votes start to hit certain stocks, sectors and assets, but in general, synchronised global growth has led to continued confidence in most markets.
"Investors have been attracted back to Emerging Markets which exhibit robust economic growth, less political risk and more independence from dollar-denominated debt"
The weakness of Sterling since the UK voted to leave the European Union has made UK based companies more appealing acquisition targets to overseas buyers. Kraft made an audacious offer for Unilever in February which was swiftly rebuffed and then withdrawn. Kraft’s reputation had been damaged since its takeover of Cadbury in 2010, when promises to keep UK factories open were swiftly broken. The collapse of the Kraft/ Unilever deal led to a sigh of relief, from not only employees but also from politicians, wary of how powerless they were to respond to such an advance. Unilever swiftly announced a strategic review of its businesses, and the shares still remain nearly 20% up so far this year.
Overseas markets have also performed well. Investors have been attracted back to Emerging Markets which exhibit robust economic growth, less political risk and more independence from dollar-denominated debt. European markets remain buoyed by continued loose liquidity. The US has also performed well as the Trump trade has not significantly faded. The promise of corporate tax cuts is seen as a powerful boost to earnings in the States. Protectionist measures, promised before the November 2016 election, have not yet been articulated fully and investors remain confident that global trade will continue to grow.