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Market View

When the media tail wags the investor’s dog

 

In March, the ‘Beast from the East’ became a media storm, and before we knew it, we were closing schools and airports, cancelling trains and filling our fridges in fear of ‘snowmageddon’. Whether the nation’s reaction was justified is debatable, but there’s no question the media played its part in fuelling panic. By the time the Beast left our shores, it was predicted that first quarter growth would be halved as a result.

If you’re in any doubt about the influence the media can have over investor outcomes, just ask Mark Zuckerberg. Within two days of media reports suggesting that the Facebook profiles of 50 million users were harvested for data, more than $50 billion of value was wiped off the company’s stock value. Bitcoin is another example. The astronomical rise in Bitcoin prices doesn’t appear to be due to any underlying usefulness in the ‘coin’ itself being suddenly realised by the masses – it was solely propped up by sentiment, which has since waned, along with media interest.

Why is this relevant? Well, we think we’re entering a sustained period of increased volatility, and the media will likely have its part to play. Whatever the story of the day happens to be, we’ll stay focused on the outlook for global economic growth and the impact this will have on company earnings and interest rates. The outlook for company earnings is strong, but we’re watching for signs of softening as elevated valuations provide little room for error. Meanwhile, central banks are raising interest rates, giving rise to market jitters. We think these worries are premature.

We remain positive about the opportunities in emerging markets. Valuations are more reasonable, demographics are better and they’re beneficiaries of strength in developed markets. As part of that outlook, we’re particularly interested in anything connected to the Chinese consumer – where we see phenomenal growth spilling out into the wider region.

We can’t always predict the next headline-making story, so we stick to what we know – the art of marrying the price of every region, sector and business we’re invested in to the basic, underlying fundamentals.

“Exceptional employment and manufacturing data are confirmation that global economic growth outlook is robust. Yields have been rising thanks to the central banks beginning the process of reversing their quantitative easing programmes, and the markets are not sure how to handle it. If yields grind higher, we should expect a sustained period of higher volatility.” – Philip Smeaton, Chief Investment Officer

Investment view: The tip of the data iceberg

 

When the Facebook storm took hold in March, the world woke up to the consequences of sharing personal data. As Jack Ma, the inspirational founder and executive chairman of Alibaba put it, “the world is going to be data. I think this is just the beginning of the data period.” Ma says, “information technology aims to control, while data aims to share.”

Ma likens it to when electricity was invented. Back then, we knew electricity was going to change the world, but we couldn’t begin to imagine to what extent. Similarly, today we’re at the very beginning of the data story, and while we recognise its potential, we have no idea what direction it will take us.

As well as denting investor confidence, the short-term fallout of the Facebook scandal will be a focus on regulation. The onus is on individual governments to put the right amount of consumer protection in place, without stifling innovation. They need to find the balance between allowing data to deliver better products while protecting people’s privacy. At the end of the day, it’s not an option to sacrifice human rights for business purposes, but where that line is crossed is complicated.

There’s no getting away from the fact that our personal data will be at the centre of business and politics for decades to come. The sooner we, as consumers, understand how valuable that data is, the better.

Focus on… China

 

The Chinese economic story has been an impressive one over the last 40 years. As the graph below shows, its Gross Domestic Product (GDP) is expected to exceed that of the whole of Europe for the first time in 2018 – firmly stamping its authority on the global economy.

While the pace of growth looks set to slow, it will remain high, compounding from a very high base, and there’s little to suggest that China is anything other than a great place to invest. While the removal of the two-term limit on the presidency – effectively meaning that Xi Jinping could remain president for life – is one to watch, we don’t think it changes the core themes for this juggernaut economy. Jinping is known for championing anticorruption and favouring a move towards the free market (with ‘state oversight’), and these policies will appeal to global investors in the short term.

The longer-term view is whether the debt concerns can be effectively addressed without impacting the competitiveness and potential of the economy. But who knows what China has up its sleeve – particularly in a world that will become dominated by Artificial Intelligence.

MV-Chart-1.PNG

Notes: Charts nominal GDP levels; 2017, 2018 Bloomberg survey medians used where official data unavailable as of Feb 26, 2018. IMF GDP deflators used to convert from real levels.

Sources: Bloomberg, world bank, International Monetary Fund.

Sanlam news


Hot on the heels of The Global High Quality Fund winning both an Investor Choice and a Private Asset Management award for its long-term  performance, it has now been voted Best Fund in the City of London Wealth Management Awards. Not to be out-done, our Strategic Bond Fund, managed by Craig Veysey, also won the Lipper Award for GBP Bond in the three and five-year categories.

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This article is for information purposes and should not be treated as a forecast, research or advice to buy or sell any particular investment or to adopt any investment strategy. Any views expressed above are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness by Sanlam Private Wealth. Any expressions of opinion are subject to change without notice. Reproduction of this commentary is not allowed in whole or in part without prior written agreement from ‘Sanlam Private Wealth. Past performance is not a reliable indicator of future results. Investing involves risk. The value of investments, and the income from them, may fall as well as rise.

Investing involves risk and the value of investments and the income from them may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.