25 November 2019
Have times really changed?
If we take a look back to 1789, French parliamentarians who attended their National Assembly gravitated to one side or the other of the Assembly President – those who sat to the right wanted to defend the king and establish a hierarchy, while those on the left supported the French Revolution and further reform. Over the following decades, this seating arrangement has taken up residence and become shorthand for political positions all around the world.
When we take a closer look at the UK parliament of today, we can see the old left-right division more evident than it has been for many years. With the two main political parties having published their manifestos (see the Wealth Check section below), we can see that they project a very different outlook for the country’s future.
Despite this, each one, in its own way, also conjures up the past – the Conservative manifesto argues that “we led the way in opening up trade in manufactured goods in the last two centuries. For the first time in nearly half a century, the UK will have its own independent trade policy once we leave the EU.” Labour’s main historical focus is the post-war Attlee government of 1945, especially as it repeats word-for-word a manifesto promise on housebuilding from that same year.
Even though there are some dramatic differences between the two parties, both now wish to spend, which, when you take into consideration the OECD last week published for G20 governments to open the spigots and the latest Bank of England analysis that suggests investment is needed in the UK, is perhaps understandable. The latter point also argues that businesses will start to do this once the uncertainty around Brexit has ended.
Both Johnson and Corbyn provided their respective versions to a sceptical CBI last week. The Prime Minister had made enemies with his hostile comments about UK business last year, but Jeremy Corbyn most likely fared worse as his audience was unnerved by a few pledges, including the nationalisation of utilities, a financial transactions tax and putting workers on boards.
The markets also offered their own assessment, with polls showing Labour falling to some 15%-17% behind the Conservatives in the polls – and sterling rose to its highest level in two weeks. It wasn’t just the FTSE 100 that is generally in rally mode, thanks to the 2020 growth and trade hopes.
When we take a closer look at trade, we can see that more positive noises are being made from both the US-China divide and also Japan and South Korea, of course, with the UK-EU trade negotiations boosting sentiment. As well as this, volatility has been exceptionally low, which indicates that many investors may spy opportunities.
“The global economy has struggled to grow, coming out of the financial crisis – central bank intervention has driven interest rates negative in many cases, and you have the industrial revolution of our age – the technological revolution,” said Dan O’Keefe of Artisan Partners, co-manager of the St. James’s Place Global fund. “All three factors have driven investors to companies they believe can grow in any environment.”
At the end of last week, stocks did slip, however, after the US Senate passed a bill that would oblige the White House to reconsider Hong Kong’s special status on an annual basis – a shot across the bows of US-China rapprochement. The S&P 500, China’s CSI and the EURO STOXX 50 all fell.
Earnings last week were mixed, which brought news for US retailers, such as Lowe’s, but bad news for some global names, like Kingfisher. The sharp dip in EasyJet’s earnings was smaller than expected, pushing up the share price – the recent demise of Thomas Cook was given as one of the reasons, since it freed up airport slots. On the other side of the world in Asia, Alibaba raised $11 billion in its second listing, this time in Hong Kong.
We also saw Hong Kong remain as a global flashpoint last week as a court ruling angered the mainland. Local elections, of little practical importance, suggested Beijing is also failing to win its PR war in the city and pushed up Hong Kong stocks in early trading this morning.
Meanwhile, the People’s Bank of China chose to cut rates for the first time in four years, signalling the advent of a new easing cycle. More importantly for China is that data shows that capital is increasingly flowing from dollar to renminbi assets, and that consumption in the country is on the rise. This shift suggests global investors are finding more and more opportunities in the country.
“In China, the two areas we’re interested in are the internet and healthcare,” said Mark Baribeau of Jennison Associates, manager of the St. James’ Place Global Emerging Markets fund. “We’ve increased our exposure to companies like Alibaba, which are doing very well, even in a tough environment; continuing to gain market share. And China’s healthcare system is way behind where it needs to be to satisfy the needs of the country, so they’re investing heavily in building their own life sciences industry.”