Our Investment Commentary for Q2 2014 (1 April – 30 June)

Following a volatile first quarter of 2014, Q2 has offered a much more positive outlook, with the FTSE100 gaining 2.36% as opposed to contracting by 1.26% in the period January to March.

Despite a steadily improving worldwide economy and strong stock market performance this quarter, there seems to be a level of resistance preventing markets from reaching all-time highs experienced before the crash in 2008. The period April to June can be summed up by positive economic indicators helping markets to make gains, counteracted by Geopolitical tensions around the globe.

With markets knocking on the door of record highs, we have witnessed a trend of investors rotating out of high growth stocks and into slightly more defensive, income strategies, gaining exposure to sectors such as utilities and selected emerging markets which have lagged the bull market of recent years.

Markets stabilise throughout the second quarter


In the UK, it seemed Q2 looked set to follow the slight downward trend set in Q1, with weaker than expected GDP figures released early in the quarter. However, this was not the case and after a slight wobble at the beginning of April, markets soon recovered their poise, gaining throughout Q2 from a sustained increase in manufacturing output, falling unemployment and UK retail figures hitting multi-year highs. The housing market continues to act as a double edged sword as rising property prices continue to spiral higher, sparking ever increasing fears of a property bubble.

The Bank of England has so far kept the base rate unchanged at 0.5%, however minutes from the latest Monetary Policy Committee meeting revealed a growing preference for accelerating anticipated rate rises which we expect to occur early next year.

United States

US Federal Reserve Chair, chair Janet Yellen provided a welcome positive update on the outlook for the economy with strong manufacturing data the main driving force behind a strong quarter, with the S&P500 up 4.33%. However, Yellen also noted concerns over potentially slower job growth and weakness in the housing market as signals that interest rates may remain lower for longer. Since any rate rises will be data dependent, it could still be some months before any increases occur.

The tapering of quantitative easing continued throughout Q2 and in June, the Fed once again reduced monthly bond purchases from $45 billion (£27 billion) to $35 billion which is now less than half the $85 billion a month it was pumping in last year. As the monetary stimulus reduces, so too does the growth target for the world’s largest economy and forecasts for US economic growth have been slashed from 2.9% to approximately 2.2% year on year.


In India, markets were up 15% in Q2 as hopes of economic revival soared following the election of Prime Minister, Narendra Modi. Modi has a ‘pro-investor’ reputation and his visions of economic reform have seen markets jump in recent weeks. Having struggled in Q1, Japan’s Nikkei index returned to growth in Q2, buoyed by a pick-up in manufacturing activity in the US, Japan’s biggest export market.

Much in line with the rest of Asia, there were positive signs In China, where the economy seems to be stabilising after a stuttering year. April’s trade data saw a return to positive export growth and fears surrounding a property bubble appear to be alleviating as Chinese authorities take action to mitigate some of the slowdown in the country’s property market. In addition, new pro-growth policies, such as tax breaks for small companies, were announced late last month.


In Europe, the second quarter was dominated by elections for the European Parliament in May. The rise of populist anti-Europe parties was evident throughout the EU with notable success for The Anti-EU National Front in France, gaining 26% of the vote and the UK Independence Party gaining significant support ahead of next years general election. Eurosceptisism has increased throughout the EU, putting pressure on the European Central Bank (ECB) to take positive steps to speed up the steady economic recovery. With first quarter GDP growth at a disappointing 0.2%, it is expected that Mario Draghi will further loosen monetary policy to stave off deflationary pressures, which could well see a negative deposit rate introduced.

Emerging Markets

Emerging markets performed favourably in Q2, outperforming the majority of developed economies. Despite the continued conflict in Ukraine, tensions do now seem to be finally easing with the election of Petro Poroshenko in May who has recently negotiated a trade pact with the EU. More recently, there has been agreement between the foreign ministers of Russia and Ukraine to meet in Berlin to hold three-way talks involving pro-Moscow rebels to pave the way for a new ceasefire. Sentiment towards Russia was also boosted by the announcement of a 30-year $400 billion gas supply contract with China.

Elsewhere, the start of the World Cup has done little to boost a struggling Brazilian index, although protests in the country do seem to have subsided somewhat since the start of the tournament. In the Middle East, the leader of jihadist militant group ISIS has called on Muslims to travel to Iraq and Syria to help build an Islamic state. Iraq is the world’s third largest oil exporter and further advances by ISIS towards Baghdad could lead to spikes in prices.  


The table below shows the performance of key global markets in local currency and UK sterling terms, including dividends re-invested between 1st April and 31st June and for the full year (31st June 2013 – 31st June 2014).



% change

(local currency)

Q2 2014

% change

(local currency)

Full Year (Q2 2013 – Q2 2014)

% change


Q2 2014

% change


Full Year (Q2 2013 – Q2 2014)



+ 2.36

+ 12.35

+ 2.36

+ 12.35


FTSE Europe ex-UK

+ 3.04

+ 24.25

– 0.6

+ 15.56


S&P 500

+ 4.33

+ 23.83

+ 1.51

+ 9.84


Nikkei 225

+ 2.50

+ 10.86

+ 1.96

– 3.58

Hong Kong

Hang Seng

+ 5.44

+ 15.39

+ 2.67

+ 2.43


FTSE World

+ 3.97

+ 21.68

+ 1.74

+ 10.01

UK Gilts

FTSE All Stocks

+ 1.07

+ 2.33

+ 1.07

+ 2.33

Along with a reduction in volatility, investment markets for Q2 all show gains in local currency terms. Gains are still lagging full year performance figures but this is expected following a particularly strong 2013. With sterling particularly strong at the moment, returns in the majority of overseas markets have been dented.

Outlook for July to September 2014 (Q3)

We remain positive on equities over the medium to long term and believe that while markets may take longer than expected to reach all-time highs, there is enough positive economic data to support most indexes at current levels. Strong manufacturing data, particularly in the US seems to be one of the main driving factors at present, helping to support emerging market economies also.

With markets close to all-time highs, we expect to see the start of a rotation from growth focused investment strategies to slightly more income focused portfolios. Looking further ahead towards next year, we may also see a rise in bond purchases.

In the UK, the booming housing market is perhaps the main cause for concern leading into Q3 and we expect further action from Mark Carney and reviews of mortgage issuing practices to help quell fears of a property bubble bursting. We expect the Bank of England base rate to remain at 0.5% throughout Q2, following a warning form the IMF about the dangers of raising rates too early.

One of the most welcome signs of Q2 was the stabilising of growth in China and Japan. Whilst we remain watchful of complex Asian economies, we are encouraged by positive market sentiment which seems to be returning and expect this to continue into Q3.

Europe continues to be closely monitored and the introduction of negative deposit rates could provide a boost for equities.

Despite worldwide geopolitical tensions, our view is that fundamental economic data continues to paint an improving picture and on this basis we are hopeful of positive returns during the rest of the year.

Our Approach

Our approach is to help our clients benefit from attractive equity returns and target sustainable dividends from a diversified portfolio, on the basis of our diligent research and analysis to highlight interesting investment opportunities and mitigate risk as far as possible.

[Matthew Clark, Seabrook Clark Ltd, 3 July 2014]

Please note, our Investment Commentary is our view of markets and does not constitute investment advice. Past performance is not necessarily an indication of future returns; the value of investments and any income from them is not guaranteed and can fall as well as rise. If you would like investment advice on your individual circumstances, please do not hesitate to get in touch.

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