Active investment commentary & analysis

The Big Picture

When stock markets sell-off rapidly, it is easy for investors to be sucked into trading. But stock market turmoil creates a lot of false signals; it is a time to focus on the big picture. Global growth will slow in the coming year, but recession in the world economy remains unlikely. In the UK, real wage growth is helpful, but likely to remain subdued, and the Bank of England will have no reason to raise interest rates in the next 12 months.

What can look like new trends, are sometimes quickly reversed. For much of 2018, oil looked the place to be, but the sector has sold-off sharply. A market change that initially looked like a rotation from growth to value has become more complex. “Quality stocks” –businesses such as consumer staples – might not prove safe in 2019. The theme for the year may not be trade wars, commodities or geopolitics, but debt. Leveraged companies will find it harder to raise money from shareholders, and bank finance will tighten. Identifying true growth and sound business models will matter.

The UK equity market might be better placed than some others. Shunned by international investors and with retail outflows since the Brexit referendum, it looks under-owned. As an economy with leadership in a number of sectors, an independent monetary policy and a relatively free regime on takeovers, its appeal may be rediscovered. Global disinflationary pressures remain, challenging many incumbent businesses, including consumer staples.