Wellesley WeeklyWatch – The bright lights of the Asian upsurge

20 April 2021

Stock Take

Spread the risk

As vaccination programmes gain momentum around the globe, economists are actively speculating about the speed at which countries will recover from the economic damage brought about by the pandemic.

The IMF upgraded its world economic growth forecast last week – the second time in three months – but it also signalled concern about increasing inequality and a gap between advanced and lesser-developed economies. Nevertheless, a prominent part of its update was the predicted rate of growth in Asia, where a 7.6% boost to the regional economy is anticipated this year.

Furthermore, data revealed last week that the Chinese economy performed positively throughout the first few months of 2021.

“The Chinese economy has been exceptionally strong ever since COVID-19 was brought under control,” noted Martin Hennecke, Asia Investment Director at St. James’s Place. He does, however, observe that the Q1 figures are slightly biased by the ‘low base’ effect, as the first quarter of 2020 (which the recent numbers are compared against) was particularly low because of the outbreak.

Hennecke continued:

“In fact, real growth actually slowed slightly when compared with Q4 2020, but in my view that’s a positive, since China has deliberately sought to cool bank loan growth, deleverage generally, reduce the budget deficit from 3.6% to 3.2%, and tighten IPO standards, to mitigate overheating and bubble risks. In the medium to long term such prudence might well enable a higher level of stability.”

Irregular recovery rates across the globe should underline the significance of diversification for investors. You can lower your exposure to any one type of investment by expending across different countries and asset classes – this is crucial for managing the level of risk you are taking.

Back to basics

Last week saw Wall Street’s VIX index, which measures forecasted volatility in US stocks, tumble to its lowest level in around a year. Robust earnings results from banks and other financial companies helped to nudge US stocks up.

Likewise, London’s FTSE 100 Index of large UK companies reached its loftiest level since early on in 2020. Another indication of the UK’s recovery is that online job adverts are now at their pre-pandemic levels (see In the Picture).

Markets were more buoyant last week; however, the last few months have experienced their fair share of doubt about the perspective of the global economy. There have been attempts by investors to estimate the probability of higher inflation, the threat of new COVID-19 strains, and soaring valuations for certain sectors of the equity markets, such as big tech businesses.

The share prices of companies that profited from the pandemic have enjoyed a certain level of growth over the past year. There has been something of a U-turn on this more recently, though, given that the share prices of companies more related to the health of the economy (banks, energy companies and airlines, for example) are experiencing a renaissance.

Whereas investors were right to gamble heavily last year on fast-growing technology stocks, the recent ‘rotation’ in equity markets may pave the way for a shift in markets, wrote George Droulias, an Investment Analyst at EdgePoint, which co-manages global funds for St. James’s Place.

“One of the best-performing investment strategies in 2020 was simply buying businesses that had the fastest revenue growth without any concern for any other fundamental or valuation measures. In 2020, investors became enamoured with ‘work from home’ stocks and rapidly growing sectors such as electric vehicles, green energy, online gambling and cannabis.”

He does, however, debate that as the world recovers from the coronavirus crisis, the use of tried-and-tested financial principles will once more be the best method for seeking long-term investment returns.

Droulias added:

“Behaving like a rational business person wasn’t rewarded in 2020, but it is and will continue to be important over the long term. Much like our social behaviours in 2020, we think certain stock market behaviours in 2020 were an anomaly. In turn, if investors want to set themselves up for long-term success, they should continue to focus on sound investing and business fundamentals, and put little emphasis on the ‘lessons’ learned in 2020.”

Wealth Check

According to a recent survey from Technical Connection and Ad Lucem, the economic uncertainty, lockdowns and market fluctuations of the past year have affected the financial confidence of investors, with only 47% of people with investments under £500,000 feeling assured about their finances.1

Our financial confidence is very much intertwined with a sense of security – our savings and investments act as a kind of buffer when unforeseen events are sprung on us. They also enable us to positively plan for the future, meaning we feel our long-term goals and objectives will play out with certitude.

Market lows have a tendency to recover as time goes on, yet the feeling of insecurity that’s tied in with seeing the value of our investments drop can markedly impact our confidence and assurance about the future.

Fortunately, those who regularly sought financial advice reported increased confidence about their savings – 60% of people who received financial advice felt optimistic about their finances, compared with only 35% who had not spoken to an adviser.2

If you’re in the position where you feel your financial confidence has been shaken over the past year, speaking to your Wellesley financial adviser about how best to plan for and meet your goals could have a notable effect on your financial confidence and well-being over future market cycles.

An element of doubt and market fluctuations is part and parcel of investing over the long term, but seeking informed advice on what matters to you can make a world of difference.

“Prioritising your goals and objectives is an empowering way of taking control of your financial future,” says Claire Trott, Head of Pensions Strategy at St. James’s Place. “Talking to an adviser about stresses or worries you have can be really beneficial for your mindset, and set you on the course that’s right for you.”

Sources:

1,2 Survey of 500 advised clients conducted by Technical Connection, February 2021

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

In the Picture

There were indications that the UK’s economic recovery is underway as lockdown restrictions eased last week. Online job adverts have reached pre-pandemic levels, with employment flourishing in the hard-hit sectors of retail and hospitality.

The Last Word

“Our lives have been enriched through the challenges that he has set us, the encouragement that he has given us, his kindness, humour and humanity.”

The Dean of Windsor pays tribute to Prince Philip during his funeral over the weekend, which was watched by more than 13 million UK viewers.

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

EdgePoint is a fund manager 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.

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