Sarasin Global Strategy and Outlook. Guy Monson

Transcription

1 Sarasin Global Strategy and Outlook Guy Monson

2 Synchronised global growth and trade at last GDP, ANNUAL GROWTH (YOY %) GLOBAL TRADE Global Export Volumes The pickup in global growth has been broad based, with notable upside surprises in Europe and Asia. IMF Jan 2018 Source: IMF, Macrobond 1

3 In the US business sentiment is strong with GDP accelerating is this the time for tax cuts? US BUSINESS CYCLES 2

4 While a weaker dollar and recent tax cuts/spending heighten pricing pressure WEAKNESS IN THE US DOLLAR WILL LIKELY CONTINUE. The $1.5 trillion tax cut that President Trump signed into law late last year, combined with a looming agreement to increase federal spending by hundreds of billions of dollars, would deliver a larger short-term fiscal boost than President Barack Obama and Democrats packed into their $835 billion stimulus package in the Great Recession. NY Times Feb

5 The peak of Central Bank liquidity is now past us tighter money policy will now start to influence asset prices CENTRAL BANK BALANCE SHEETS TOTAL NEARLY 40% OF GDP Total, % GDP The architects of Global Central Bank Bond Purchases are due to retire or need reappointing Yellen/Powell Feb 18 Kuroda Re-Nominated /05 01/07 01/09 01/11 01/13 01/15 01/17 Fed ECB BoJ BoE Total stock as a share of GDP 0 Carney Jun 2019 Draghi Weidmann? Oct 2019 Source: IMF Global Financial Stability Report, October

6 Euro area economy is booming with eurozone inflation still very muted PACE OF ECONOMIC RECOVERY ACROSS EURO BLOC GDP index (Q =100) INFLATION REMAINS LOW Euro area inflation 5

7 China: A text-book handover from investment led growth to consumption COMPONENTS OF CHINESE GDP GROWTH AND THE IMPACT OF CONSUMPTION and Sarasin & Partners 6

8 The UK and Brexit 7

9 The extraordinary feeling of policy uncertainty that characterised Brexit is quite unprecedented ECONOMIC POLICY UNCERTAINTY INDEX FOR THE UK Economic Policy Uncertainty: We obtain a monthly count of articles that contain a triple of terms about the economy (E), policy (P) and uncertainty (U). We then scale the raw counts, standardize each newspaper s variation, average across papers in a country by month, and normalise. Source: Economic Policy Uncertainty 8

10 Wording on Northern Ireland accentuates extremes Hard Brexit or an embrace of Customs Union/Single Market EXTRACT FROM EU DRAFT TEXT FOR ARTICLE 50 European Commission Draft Withdrawal Agreement Protocol on Ireland/Northern Ireland DESIRING to create a common regulatory area on the island of Ireland in order to safeguard North-South cooperation, the allisland economy, and protect the 1998 Agreement; Should a subsequent agreement between the Union and the United Kingdom which allows addressing the unique circumstances on the island of Ireland, avoiding a hard border and protecting the 1998 Agreement in all its dimensions, become applicable after the entry into force of the Withdrawal Agreement, this Protocol shall not apply or shall cease to apply, as the case may be, in whole or in part, from the date of entry into force of such subsequent agreement and in accordance with that agreement. Article 9

11 The economic impact has been surprisingly measured, although the potential for weaker investment is clear BREXIT INVESTMENT INTENTIONS LONGER TERM INVESTMENT IMPACT Source: Bank of England, CBI, Deloitte CFO Survey, EEF, Lloyds Bank/London First & Thomson Reuters 10

12 Immediate effects include falling net migration and a weaker currency - both of which are inflationary FALLING MIGRATION WILL LIFT LABOUR COSTS STERLING STILL 15-20% BELOW PRE-REFERENDUM Source: Bank of England Inflation Report Feb

13 UK inflation principal casualty of Brexit to date UK INFLATION 12

14 Despite weakness in London UK wide property prices are stabilising RIGHTMOVE ALL UK RESIDENTIAL PRICE INDEX Rightmove February Property blog Record home-hunter activity fuels rises in most regions Active start to 2018 as housing demand continues to be resilient: Price of property coming to market up by an average of 0.8% (+ 2,414), indicating cautious optimism among new sellers All regions see price rises except for marginal fall of just 131 in the South West January busiest month ever on Rightmove with home-hunter visits hitting over 141 million Midlands dominates fast-selling hotspots with prices rising three times faster than the national average. 13

15 Future trade negotiations somewhere between Norway Minus and Canada/Korea-Plus PRESENTATION BY MICHEL BARNIER TO EU 27 DECEMBER 2017 UK Desire EU Offer Source: Slide presentation by Michel Barnier to Heads of Government

16 Risks 15

17 Risk 1: US equity returns have been dominated by PE multiple expansion rather then Profits Growth 16

18 Risk 2: Rising Income Inequality in the Developed World GLOBAL INCOME GROWTH Source: Branko Milanovic/Alliance Berstein

19 UK Wealth distribution more uneven than income WEALTH OF TOP 10% OF HOUSEHOLDS 5 X BOTTOM 50% MAINLY VIA PENSIONS AND PROPERTY VERY SUBSTANTIAL REGIONAL WEALTH DIVIDE Note: Total UK Wealth 7.4 trillion of which 35% Property & 41% Pensions ONS Wealth in Great Britain Source: Wealth and Assets Survey ONS Source: Wealth and Assets Survey ONS 18

20 Recent Market Volatility & Future Strategy 19

21 Equities have dominated global asset class returns over the past 12 months, even after recent declines MULTI ASSET RETURNS SINCE SARASIN 2017 CHARITY SEMINAR (GBP) 20

22 Few safe havens this time - In the early weeks of 2018 all major asset classes generated negative returns FEW SAFE HAVENS IN

23 Equity volatility in 2018 was material and exceeded the Trump election and Brexit referendum readings US EQUITY MARKET VOLATILITY OVER 10 YEARS 22

24 Note that, despite equity falls, US and global bond yields rose and bond market volatility surged UK AND US BOND YIELDS RISE THROUGH 2018 VOLATILITY OF 10 YEAR TREASURY BONDS 23

25 But equity dividend yields remain compelling against global cash or bonds, and dividend growth is robust EQUITY YIELD GAPS MORE THAN 20 YEAR HIGHS 24

26 A cautious portfolio to reflect interest rate risks and the challenges for corporate profits GLOBAL STRATEGY UPDATE 1. Bonds: Underweight Government and corporate issues, and maintain short duration 2. Equities: Underweight or utilise Portfolio Insurance Valuations are rich, beware of excessive growth tilt US & now European banks an effective hedge vs. rising rates Favour old world industries using new world technologies Global equity dividends rising strongly and are attractive vs bonds and cash UK domestic assets abnormally cheap as global investors shun UK 3. Alternatives: Overweight Global infrastructure attractive as bond alternative Gold attractive with interest rates in Europe and Japan negative and continuing QE 4. Cash: Overweight Risks: Long term: Global debt levels, Asset valuations, Populism & Inequality 25

27 Important Information This presentation has been approved by Sarasin & Partners LLP of Juxon House, 100 St Paul s Churchyard, London, EC4M 8BU, a limited liability partnership registered in England & Wales with registered number OC which is authorised and regulated by the Financial Conduct Authority with firm reference number and passported under MiFID to provide investment services in Republic of Ireland. The investments of the funds are subject to normal market fluctuations. The value of the investments of the funds and the income from them can fall as well as rise and investors may not get back the amount originally invested. If investing in foreign currencies, the return in the investor s reference currency may increase or decrease as a result of currency fluctuations. Past performance is not a guide to future returns and may not be repeated. There is no minimum investment period, though we would recommend that you view your investment as a medium to long term one (i.e. 5 to 10 years). Frequent political and social unrest in Emerging Markets, and the high inflation and interest rates this tends to encourage, may lead to sharp swings in foreign currency markets and stock markets. There is also an inherent risk in the smaller size of many Emerging Markets, especially since this means restricted liquidity. Further risks to bear in mind are restrictions on foreigners making currency transactions or investments. For efficient portfolio management the Funds may invest in derivatives. The value of these investments may fluctuate significantly, but the overall intention of the use of derivative techniques is to reduce volatility of returns. The Funds may also invest in derivatives for investment purposes. All details in this presentation are provided for information purposes only and should not be misinterpreted as investment or taxation advice. This document is not an offer or recommendation to buy or sell shares in the funds. You should not act or rely on this document but should seek independent advice and verification in relation to its contents. Sarasin & Partners LLP and/or any other member of the J. Safra Sarasin Group accepts no liability or responsibility whatsoever for any consequential loss of any kind arising out of the use of this document or any part of its contents. The views expressed in this document are those of Sarasin & Partners LLP and these are subject to change without notice. This presentation does not explain all the risks involved in investing in the funds and therefore you should ensure that you read the prospectus and the KIID which will contain further information including the applicable risk warnings. The prospectus, the KIID as well as the annual and semiannual reports are available free of charge from or from Sarasin & Partners LLP, Juxon House, 100 St Paul s Churchyard, London, EC4M 8BU, Telephone +44 (0) , Telefax +44 (0) For your protection, telephone calls may be recorded. Where the data in this document comes partially from third party sources the accuracy, completeness or correctness of the information contained in this publication is not guaranteed, and third party data is provided without any warranties of any kind. Sarasin & Partners LLP shall have no liability in connection with third party data. This publication is intended for UK registered charity investors in the United Kingdom Sarasin & Partners LLP all rights reserved. This document can only be distributed or reproduced with permission from Sarasin & Partners LLP. Please contact marketing@sarasin.co.uk 26