WeeklyWatch – Streaming helps S&P 500 strike all-time high

18 November 2019

Stock Take

Disney joins the streaming surge

Many of us look back on the Blockbuster era with a sense of nostalgia – back in 2004 we had 9,000 stores worldwide to choose from as we sought out the latest releases (complete with accompanying popcorn and fizzy drinks). Today, only one store remains, next to a petrol station at a busy intersection in Bend, Oregon. ‘Wow! What a difference’, indeed!

One of the biggest nails in the video rental company’s coffin was the rise of streaming services. Ironically, in 2000, Blockbuster turned down the chance to buy a relatively unknown fledgling video streamer, then just three years old, for $50 million. But Netflix certainly has everyone’s attention now. It has a market capitalisation of $124 billion and its customers watch 165 million hours of Netflix content a day!

Even well-established film companies are taking note of streaming success – last week saw the 96-year-old Walt Disney Company launch its own service: Disney+. Disney’s share price rose following the announcement, and contributed to the S&P 500 striking another all-time high last week, clocking its sixth consecutive week of gains – the longest run of weekly gains since 2017.

Chinese stocks fail to keep up

Across the Pacific, stocks had a less buoyant week, suffering the effects of reports that a first-phase trade deal with the US was becoming less likely, even as Alibaba all but confirmed it would be launching a second listing in Hong Kong (its first was in New York). Protests continued to dominate the narrative in Hong Kong, where the economy is in recession, and the situation deteriorated over the weekend, with violence increasing. On Saturday, Beijing posted locally stationed troops to “clean up” the streets and remove roadblocks.

Alistair Thompson of First State Stewart Asia, Manager of the St. James’s Place Asia Pacific fund, said: “A lot of the companies in Hong Kong are still up for the year. We haven’t seen a huge impact on stock markets, although there has been a little more in the last few days. Companies in the retail sector have not been performing well, as shopping centres have closed. It’s also a worry for some companies like Cathay Pacific – airline travel has slowed sharply.”

Chinese stocks have been performing exceptionally strongly in 2019, making it the best-performing major stock market worldwide, but Thompson argues the rise may say more about decisions by MSCI, which is responsible for many of the world’s leading indices, among them the MSCI Emerging Markets Index and MSCI AC Asia Pacific Index, than about fundamentals.

Thompson continued: “The main reason for the market performing so well has been that MSCI increased China weighting, which meant that a lot of passive money went into the equity market,” said Thompson. “At a macro level in Asia Pacific, things could actually look quite bearish in the sense that there are excessive levels of debt, interest rates are unsustainably low, and we don’t have inflation. But at the company level, we are very excited about the next five years.”

Germany narrowly avoids entering recession

Asia Pacific is not the only region facing macroeconomic headwinds at the moment. Last week, GDP figures came in for Germany, showing 0.1% for the third quarter – the news meant the country has just dodged a technical recession. German figures put the UK in a good light, as the latter delivered 0.3% quarterly growth, thanks to the construction and services sectors.

UK under fire due to Brexit trade uncertainty

But that was where the flattery ended: last week the EU opened proceedings against the UK after the government failed to nominate a new commissioner as per its mandate, and a coalition of 15 UK trade partners (including the US, India and Australia) made a case at the World Trade Organization for compensation from the UK, due to the trade uncertainty caused by the Brexit referendum and its aftermath.

Last week also saw Chinese President Xi Jinping lend his support to Greece’s case for the return of Parthenon Marbles (often referred to as the Elgin Marbles) from the British Museum in London, in a decades-old dispute over the sculptures.

Economists pessimistic about party spending pledges

Despite the WTO case, the UK Prime Minister and opposition were focused on spending (and on arguments about spending). Under their election pledges, the Conservatives would raise public spending from 2% to 3% of GDP, while Labour would double it to 4%. Neither level of public spending has been seen since the 1970s, but the plans did not rattle investors, and bond yields remained low.

“The bond market is offering a once-in-a-generation opportunity for a big fiscal expansion,” said Mark Dowding, Chief Investment Officer at BlueBay Asset Management.

Yet where there is a will, there may not actually be a way. Many economists are arguing that achieving even the more modest government spending targets of recent years has failed – and that low unemployment makes it all the more difficult to begin major new infrastructure projects, since the latter require significant numbers of workers.

Yet for all the focus on spending plans, Brexit may still prove the decider in this election, and is already pushing the Tories to focus on the North of England and Labour on much of the South. Furthermore, last week Nigel Farage confirmed he would not stand Brexit Party candidates against Tory incumbents, but he will run candidates against Labour.

Wealth Check

This week the UK wearily awaits the publication of the main political parties’ manifestos ahead of the General Election on 12 December.

In short, we shouldn’t expect many tax giveaways. Experts predict that Labour’s manifesto could incorporate materially higher taxation on both individuals and businesses, in order to fund their plans. The Conservatives have also made some high spending commitments, which will place big demands on public funds.

A Conservative victory would signal less change in tax policy, although a Tory Chancellor might be keen to revisit the high cost to the Exchequer of pensions tax relief; something that the government’s pre-occupation with Brexit has prevented them from doing. Inheritance Tax (IHT) changes proposed by the Office for Tax Simplification could also well be reviewed.

A win for Labour could see change on all tax fronts, especially Income Tax, Capital Gains Tax, Corporation Tax and Inheritance Tax.

With such uncertainty, and such big spending plans on the cards, the message for individuals planning their finances is a familiar but important one: make use of all tax reliefs and exemptions available now, if you have the means and if it is appropriate to do so. Contact your Wellesley adviser to see what allowances are available to you.

In the Picture

How do various factors affect the decisions of an investment manager? This was what SJP Investment Analyst Sophie Norman asked Tye Bousada of EdgePoint Wealth Management, co-manager of the St. James’s Place Global Equity fund.

Watch the video below to see Tye discuss his reaction to current market themes, including: ESG (environmental, social and governance factors), the weak performance of value stocks in recent years, and the interest rate plans of the Federal Reserve.

The Last Word

Not only will you have our support, but we thank you because we, too, have a lot of our sculptures abroad, and we try as hard as we can to ensure these things are returned to their homeland.

Xi Jinping, Chinese President, offers his support to the Greek Prime Minister’s push to see the Parthenon Marbles returned to Greece from the British Museum.

The information contained is correct as at the date of the article.

Bluebay, EdgePoint and First State Stewart Asia are fund managers for St. James’s Place.

The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place or Wellesley Wealth Advisory.

FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

© S&P Dow Jones LLC 2019; all rights reserved.

Back to news