September 2016 markets update

The falling Pound has no doubt proved helpful in this respect; foreign investment funds are now worth more to the UK investor when translated back into Pounds Sterling terms, even though the weakening currency is no doubt less helpful for the British holidaymaker or consumer. In September, the Dollar and Euro both appreciated by between 1%-2% vs GBP, providing an additional boost to the global investment portfolios held by our UK-based investors.

The cheaper pound has also been helpful for the FTSE 100 and All-Share indices; it has incentivised foreign investors to buy UK shares at more attractive purchase prices given that their currencies go further than they used to at the point of buying. Consequently, for one reason or another, equity markets have continued to power forwards, which would have been unthinkable back in June.

During September Emerging Markets and Commodities led asset classes forward. Investors are starting to feel more confident about putting money to work in developing nations as a result of cheap valuations and attractive long-term economic potential. More precisely, near-term concerns stemming from China have abated, based on output from various economic measures, which has probably been the most important factor of all in bringing such investors back to the market place (even though economic growth rate trends do not typically move hand in hand with stock markets – a factor that most market participants repeatedly choose to ignore, meaning that many latecomers will have missed much of those gains). Year to date, Emerging Markets are up by over a third, with Asian stocks outperforming the overall Emerging Market average.

In another reversal of Brexit trends, UK Commercial Property bounced back as initial fears surrounding the sector appear to have been overdone. Infrastructure assets also continue to gather pace, not least as talk of government-led infrastructure spending programmes, by the name of Fiscal Easing, have been discussed as zero interest rates and Quantitative Easing (QE) are perceived to be reaching the limits of their effectiveness.

Partially provoked by the possibility of irresponsible governments embarking on vast spending programmes, UK Government Bonds (both conventional and index-linked) made capital losses on the month. Although one month is not much to go on, we would eventually expect to see Bonds struggling in consequent years as per the trend of September; we see little upside and potentially a lot of downside. For this reason the Fiducia portfolios hold very little of these conventional investments; even perceived “low risk” investments will become high risk after rising so much.