the tortoise & the hare

Transcription

1 the tortoise & the hare Q Economic Overview The FED delivered its anticipated rate hike last week, its eighth since December 2015, raising rates to 2.25%. It happened on the back of confirmed US GDP growth of 4.2% for Q2, the highest growth rate in four years, with inflation hovering just above the 2% central bank target. In comparison, the UK experienced just 0.4% growth in the same quarter, while inflation rose to 2.7%. The Bank of England increased the bank rate to 0.75% in early August. Brexit negotiations have scarcely moved, leaving only a few more months to avoid a hard Brexit, with no full access to either the single EU market or the customs union. The Dollar gained 1.2% against Sterling. In the Euro area itself, growth occurred at the same level as on the other side of the Channel. Inflation is slightly lower at 2.1%, but the ECB remains cautious, keeping its refinancing rate at zero. The Italian government recently caused some angst as it plans to spend more money and increase the deficit. The Euro closed the quarter losing 0.5% of its value versus the Dollar. The Japanese Yen continued its losing streak against the Dollar, down 2.5% for the quarter. The Bank of Japan kept its target for the 10-year bond yield at zero, and the short-term interest rate at -0.1%. The Japanese economy is expanding moderately at 1% annual GDP growth and inflation increased to 1.3%, which is relatively high for Japanese standards. 1 The Chinese economy grew 6.7%, just above the government s target for the year. It remains to be seen how trade tension with the US will develop and what impact it will have on growth. Fixed Income Government bonds in local currency terms lost 0.9% of their value in Q3. For US investors, this pain was compounded by the continued strength of the Dollar. Credit, on the other hand, had a good quarter, gaining 1.2% in US investment grade and 2.0% in global high yield. Within fixed income, hard currency emerging market bonds were the place to be given that the EMBI index climbed 2.3% over the period. Equities The US equity market lead global markets higher over the summer, as it reached new all-time highs despite a 20% share price slump of Facebook in the interim. The S&P 500 gained 7.7% while stocks in Europe, the UK and Emerging Markets closed near the values they had three months earlier. Global equities therefore ended the quarter up by just 4.7%. Value stocks did better than small cap equities across the globe. Only in Emerging Markets did value stocks outperform the broad market, gaining 3.4%. On the other hand, in the US, the Russell 1000 Value index increased 5.7% and the Russell 2000 index rose by 3.6%. Issue 16 October 2018

2 Q Economic Overview Real Assets and Total Return Global REITs had a meagre return of 0.2% in Q3. The broad Bloomberg Commodity index lost 2.0%. While crude oil prices rose by 3.3%, gold lost some of its shine as prices retreated by 5.1%. Sources: Morningstar for index data, FT.com for foreign exchange and yield data, Yahoo Finance for VIX data, Trading Economics for economic data, all as of 30 September 2018 The Credit Suisse Managed Futures Liquid Index was almost flat throughout Q3. The SG Multi Alternative Risk Premia index lost 1.2% of its value. EUR and GBP hedged share classes continued to suffer from the negative interest rate differentials with the US. Our fixed income total return manager added some value in Q3, despite having had a difficult time in August. 2 Issue 16 October 2018

3 The magic of diversification Risk Warnings Past performance is not a reliable indicator of future results. The illustrations are in US Dollars unless otherwise stated. Currency fluctuations may increase or decrease the returns of any investment. There can be no guarantee or assurance that a client s portfolio will not incur a loss over any particular time period. Fees and charges do not apply in respect of any index, indices are unmanaged, do not incur interest fees and cannot be invested in directly. 3 Issue 16 October 2018

4 Q Economic Overview * % of GDP 2018 estimate change on 1 year ago **Source: Economist (30th September 2018) Source: Trading Economics (30th September 2018) Source: FT.com (30th September 2018) Source: Trading Economics (30th September 2018) *Quarter % Change from 30/06/2018 to 30/09/2018 **YTD % Change from 31/12/2017 to 30/09/2018 Source: FT.com (30th September 2018) Source: Yahoo Finance (30th September 2018) 4 Issue 16 October 2018

5 All expressions of opinion are subject to change without notice and are not intended to be a guarantee of future events. This document is for information only and does not constitute a solicitation to buy or sell securities nor does it purport to be a complete description of our investment policy, markets or any securities referred to in the material. Opinions expressed herein are not intended to be a forecast of future events or a guarantee of future results or investment advice and are subject to change without notice or based on market and other conditions. Any reference to model portfolios, which is used for internal purposes, is purely illustrative. The value of investments and the income from them may fluctuate and can fall as well as rise. Past performance is not a guarantee of future results. You may not recover what you invest. Although information in this document has been obtained from sources believed to be reliable, MASECO Asia Limited does not guarantee its accuracy or completeness and accepts no liability for any direct or consequential losses arising from its use. Throughout this publication where charts indicate that a third party (parties) is the source, please note that the source references the raw data received from such parties. MASECO Asia Limited do not provide tax or legal advice and levels and bases of taxation can change. Investments or investment services referred to may not be suitable for all recipients. MASECO Asia Limited (CE# BHR224) is authorized and regulated by the Securities and Futures Commission of Hong Kong to carry out Type 9 Regulated Activities. All information in this document is intended for financial professionals or Professional Investors (as defined under the Securities and Futures Ordinance of Hong Kong) only. 5 Issue 16 October 2018