Market Commentary April 2017

If you have made considerable investment gains since June 2016 – Don’t thank us, thank Brexit!!!

It has now been ten months since the UK voted, by a small margin, to leave the EU and in that time most of our clients have received their annual or bi-annual valuation.

You will have noticed spectacular investment returns. This one-time growth in stock market values has nothing to do with the UK entering a new world of strong economic growth – or indeed the markets favouring Brexit.

This was all to do with the collapse of sterling. Your holidays abroad and purchases from overseas instantly become more expensive – but at the same time, the devaluation of the pound meant that UK companies earning profits overseas earned more pounds to the dollar and / or the euro. We have seen daily fluctuations proving just that – on days when sterling dips, the stock market rises and the reverse is also true.

But in the long term high investment returns cannot be sustained.

Our investment committee at Gould Financial Planning continue to be pessimistic for the future and we take this view whether the UK leaves Euro project or not and / or on what terms are eventually agreed. To us Brexit may well be politically important but from an investment point of view there are far bigger issues at stake. The problems affecting the world economy mean that investment growth in the next decade is not going to be affected either way by whether or not the UK remains or leaves.

We have spoken in the past about the four horsemen of the apocalypse and nothing has changed here. The big issues are: –

  • debt; the western economies have built their economies and delivered an illusion of economic prosperity by borrowing; essentially by spending money that our children are going to have to repay
  • demography; the age profile of the western world is changing and there are proportionally more older people de-cumulating than ever before and less people being productive
  • artificial intelligence; there are better and more sophisticated algorithms driving more efficient robots and putting jobs at risk
  • offshoring; improved communication and technology means that jobs, once local, can now be undertaken in lower wage economies

These factors will serve to reduce demand or increase capacity – either way the drive to economic growth is impacted, and investment growth prospects reduced.

Simply put; we cannot expect investment returns to continue – and the gains that were made in the UK post Brexit should be banked and saved to help soften any blows that may come about in the future.

Our next investment seminar will be held in Radyr Golf Club on Wednesday 27 September – please save the date. An invitation will be sent to you nearer the time.