WeeklyWatch – Chinese renminbi hits six-month low

Monday 17th June 2019

Stock Take

No imminent end to US-China trade dispute

Last week, the biggest show on markets continued to rage across the Pacific. China’s currency, the renminbi – long a point of discord between Beijing and Washington – last week struck a six-month low against the dollar.

Economic growth forecasts for the US pointed to a continued decline on trade uncertainty – estimates aggregated by Bloomberg show that the forecast for the second quarter fell below 2% this month. The US Treasury market is not pricing in any resolution to the US-China trade war at the forthcoming G20. Meanwhile, the S&P 500 ended the week up by the skin of its teeth, amid positive jobs numbers.

China is facing more immediate economic challenges, including a fall in consumer spending, not least on cars, and the weakest industrial output in 17 years. But last week, Beijing’s focus was drawn to Hong Kong, where two million protestors tried to stop the government from agreeing a new extradition law – something that was immediately felt on the region’s stock markets. In the end, the protestors won a delay to the law’s passage, but nothing more at the time of writing.

‘Vegan meat’ figures are hard to digest

Last week Beyond Meat, a US plant-based ‘meat’ producer, held its IPO and quickly saw its market value jump to $3 billion. A day later, an analyst warning prompted a share price fall of almost 30%. The stock has already begun to recover; as the popularity of veganism and plant-based diets continues to soar, the real price of fake meat clearly remains to be worked out.

Food is indeed changing, and so too is how it’s delivered – a sentiment reflected in the launch of ‘Morrisons at Amazon’, a new venture that will see one of the UK’s biggest supermarkets offer a same-day online grocery service via Amazon. Food retail tends to involve heavy spending – but Morrisons will simply sell its food to Amazon without any major investment, which may explain why its share price rose last week.

Boris emerges as Tory frontrunner

In UK politics, Conservative leadership (and, therefore, Prime Minister) candidates began setting out their stalls in TV interviews and debates this week. Boris Johnson pulled far ahead of the pack in the first round of voting, but there are still several weeks to go yet. Last week offered yet another reminder that these are unusual political times in the UK: one candidate has talked of his willingness to prorogue parliament in order to force through a no-deal Brexit. Despite a Cabinet note showing the UK would not be ready for a disorderly Brexit on 31 October, most candidates were unmoved. Some say they are still willing to go through with no deal if there are no new developments by the deadline.

The FTSE 100 slipped, partly on disappointing Chinese industrial production. The broader picture across the UK is mixed, and investment levels remain subdued. Capital Economics said: “The labour market remained relatively robust in April, despite the drop in activity in the rest of the economy. However, we still expect employment growth to slow over the rest of this year as the available pool of labour dries up.”

Eurozone industrial production down on last year’s levels

Last week’s figures suggested production is down this year in the Eurozone, although GDP growth is relatively strong (excluding inventory adjustments). European bonds have rallied this year, and last week Germany sold 10-year bunds at -0.24%, their lowest yield yet. The exception is Italy, where the government continues to flirt with leaving the eurozone – and has a lot of debt to refinance in the coming months. The EURO STOXX 50 rose last week, albeit only marginally.

Richard Colwell of Columbia Threadneedle, Manager of the St. James’s Place Strategic Managed Fund and Co-manager of the UK High Income Fund, said: “High-yielding stocks across Europe and the UK – a proxy for the “old economy” – have only been cheaper once during the past 30 years. The weight of money that has exited the UK market, due to the political and economic uncertainty brought about by the Brexit maelstrom, has opened up a large price differential between those companies listed in the UK and their [non-UK] peers listed overseas.”

Wealth Check

The issue of gender inequality is well known, but the size of the gender pensions gap is now making headlines in the UK, with fears that the gap could remain a problem for future generations of female retirees unless changes are made to pensions and social policy.

According to worrying figures by the Chartered Insurance Institute, on average, a woman aged between 65 and 69 has pensions wealth of £35,700. That’s just a fifth of the average pot accumulated by a man the same age [1]. This is a legacy of the uneven playing field in employment that existed for women in the 1970s, and of the unfair assumptions that governed their early working lives. Until the 1990s, it was legal to offer women inferior pension rights to men.

Furthermore, the gender pensions gap is a staggering 39.5%, according to Prospect, a trade union. That’s more than double the gender pay gap and equates to an average pension shortfall for women of £7,000 a year [2].

Solving the problem of affordable childcare would ensure that it makes financial sense for mothers to return to work if they want to. And reducing the earnings trigger for auto-enrolment to the National Insurance threshold would bring in half a million new pension savers, of whom three-quarters would be women [3].

There is undoubtedly much work to do to ensure that women’s pensions achieve equality. Nevertheless, there is a number of steps women can take to improve their financial outlook in retirement. If you have a question about retirement planning, please contact your adviser.

[1]  Chartered Insurance Institute Insuring Women’s Futures, August 2018
[2]  Prospect Tackling the gender pensions gap, November 2018
[3]  B&CE, June 2019

In The Picture

Investment planning isn’t just about doing the analysis and the sums. Emotions also have a role to play – and it can be costly to think otherwise, says Dr Greg Davies, Head of Behavioural Science at Oxford Risk. In this video, Greg talks about why it is that emotions matter so much on markets, how we tend to react to external events, and highlights the importance, in times of stress, of doing nothing.

The Last Word

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value.

Warren Buffett

 

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Columbia Threadneedle is an investor for St James’s Place.

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