It’s over! After weeks of rumours and hysteria in some quarters the U.K. Budget was not, broadly-speaking, as bad as it might have been, but for some it is undoubtedly unwelcome and creates considerable uncertainty, notably for small business owners and farmers.
I don’t usually laud Dennehy Wealth, but it is on occasions such as these when they particularly come into their own. Not just a wealth management firm, but also Chartered Financial Planners, a mix of quality and qualifications which is not easy to find. They have already put together a blog and video with tips and action points around the Budget changes, particularly capital gains tax, pensions, and inheritance tax. These will be updated in coming weeks as more detail emerges, but this blog is a good starting point following Wednesday.
Returning to my more familiar territory on Friday’s, the UK stock market didn’t react particularly badly, in fact over the last 5 days UK, US, and European markets were all down in the range of 1.5%-2.5%. The notable exception was the AIM indices in the UK, up 1.5%, with some of their tax benefit retained in the Budget. UK government bonds weren’t happy as they perceived fewer rate cuts, less economic growth, and the lingering doubts over the ability of inflation to stay down (though that is more an issue in the US at the moment).
It’s nearly over! Oh yes it is. The infantile theatre that doesn’t quite reach the intellectual challenge of Christmas panto. It’s the US Presidential election.
Across August and September their equities forged ahead and appeared to be celebrating the prospect of another stock market-friendly Trump tenure. But doubts have set in over recent weeks, with increasing worries on inflation spilling over into equities in addition to bonds.
The result of the Presidential election is anyone’s guess. It is best to defer further comment until we have some clarity later next week, though I can’t help but feel that a Trump and Republican clean sweep is a recipe for market madness.
It could run and run! Chinese equities have paused over the last month. When the bazooka of stimulus was announced on 24th September, it was clear that one test of early success would be their stock market holding above the low of 13th September, being 3159 on the CSI 300 index. At the moment it is 23% above that level, which feels like a solid buffer, but such progress can disappear very quickly in a market this volatile.
China needs confidence, and it remains fragile. One fund manager visited recently and saw signs of an improvement in consumer sales versus 2023. But a different fund manager came back less enthused. His sense was that although Xi Jinping has made a decisive and pragmatic shift to turn around the Chinese economy, and he clearly intends to do whatever it takes, he will probably do so a bit more slowly than would be ideal. If that does occur, Chinese equities will be extremely volatile.
An early test will be at the end of next week. There is a meeting of the snappily named National People’s Congress Standing Committee, where more detail has been promised, and is certainly expected. Disappointment will be punished. And if there is a Trump clean sweep, this will only add to short term concerns.
It’s the time of the month for “What’s Hot, What’s Not?”. The funds edition features an unusually positive correlation, being dominated by gold on a tear and tech reaching new peaks. Both trends are a bit stretched, at least in the short term. Most of the rest of the world was not great, the worst funds being UK and European property, plus a sprinkling of Japan, India, and gilts.
The Technology sector was top, which also dragged up the two North American sectors and US-dominated Global sector. The Commodity sector was also up just over 3% on average, with gold being the driver. The laggard sectors are a wide global spread – India, Japan, UK small caps, Europe, Asia – each with their own hurdles to jump before they can turn back around and up.
Last but not least, it is also time for our Dynamic Portfolio updates, three this month – Japan, UK Blended, and World ex-UK.
Dynamic UK Blended is up 4% over the 6 months, more than 3x the index. It is up 1,178% since May 2000, despite that being a very bad time to begin investing, and that return is more than 8x the index – those who advocate index trackers as your long term staple are doing you a huge dis-service. Interestingly, all of the new funds are smaller companies.
Dynamic Japan could have been much worse, as the period started with the “flash crash”. But is down just 0.3%, and sharply outperforming the index. Since inception in 2000 it is up 4x the index. Dynamic World ex-UK was nearly up 7% over the 6 months, but just underperformed the index, up 8.3%.
Hang on to your hats next week!