As you might expect, I look back at the past month and year-to-date but I give more space to looking forward over the next month and more. Project Fear is now yesterday’s story and the threatened calamities (it would be wrong to call them forecasts) have been overtaken by positive events. Nonetheless, the road to Article 50 and then Brexit in 2019 may not be smooth.
On a year-to-date basis, 1st January to 30th September, it has been green all the way except for the stock markets of France, Germany, Italy, Spain (the core of the EU) and Japan which have all recorded negative returns. Sterling has fallen by 14.9% against the Euro and 11.9% against the US dollar, which should help exporters but may trigger inflation as imports will be more expensive.
Returns year-to-date to 30th September of over 40% were recorded by the stock markets of Brazil, Indonesia, Russia, South Africa and Thailand. The historic records of high volatility in these markets warn that direct investment could be a high risk option so that for mainstream UK investors a good global trust might be a more sensible choice.
The Stock Market Almanac, ed Stephen Eckell and published by Harriman House, describes October as ‘a puzzling month for investors’. It has a well-deserved reputation for volatility as seven of the ten largest one-day falls in the London stock market since 1984 have occurred in October. The worst at 12.2% fell in 1987 as a consequence of the Great Storm that devastated many woodlands in Southern England. In recent years the market has posted an average return of 0.7% in this month, ranking it 5th for monthly performance. The figures say that we are on course for the 4th calendar quarter to be positive in London.
The year 2016 has not been good for the promoters of Initial Public Offerings (IPOs) mainly because the perception of uncertainty that the Brexit vote created. The year 2017 should be better according to a prediction by the accountancy firm EY that the market will pick up as firms take advantage of global investor interest driven by a recovery in market pricing. The fall in the value of sterling makes UK companies more attractive to foreign buyers.
It is not a cracked record (who remembers accidents with vinyl?) but we continue to recommend that it is right to be fully invested. We are not convinced that the strength of the UK stock market is a bubble waiting to burst. Certainly, it is right to monitor the markets more closely and to be prepared to act if a market crash seems likely.