Our Investment Commentary for Q2 2018 (1 April – 30 June)

Global markets rebounded strongly in the second quarter of 2018 supported by robust US corporate earnings, the US tax cut and improved sentiment towards the geopolitical situation, particularly in April and May. Global markets ended the first half of 2018 in positive territory, with the UK market surprising some commentators with its resilience, UK exporters benefitting from sterling weakness.

However, markets have continued to experience higher levels of volatility than in recent years. This can be attributed to a focus on central bank policy – the extent and pace of possible interest rate rises, as well as the unwinding of the economic stimulus measures (quantitative easing). Whilst modest interest rate increases would help to control any inflationary pressures, particularly in the US where business confidence is robust, excessive tightening could undermine economic growth.

Market nervousness has also been the result of President Trump’s protectionist rhetoric and possible trade tariffs, as well as uncertainty in the EU with the new Italian government and ongoing Brexit negotiations. Emerging markets have faced a strong headwind as the US dollar has strengthened with a healthy economy and an increase in interest rates. Argentina has again sought assistance from the International Monetary Fund.

Overall, our view remains that global markets should continue to perform, underpinned with favourable economic forecasts and healthy and corporate earnings. However, as the bull market enters its final phase, both the potential returns and risks increase. Our focus in the second half of the year is to mitigate volatility as much as possible with a balanced approach seeking investments with attractive valuations and resilient business models. With disruption affecting almost every sector of the economy, there are plenty of opportunities in technology, whilst financials look interesting as interest rates start to rise and property has selective appeal for diversification.

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