Market View for October 2017

More positive on Europe, bonds outlook negative, and neutral view on property

More positive on Europe

We have become more positive on the prospects for shares issued by European companies, which extends the positive overall view we have towards equities. In the summer months, we had been slightly nervous about economic indicators suggesting that global economic growth could be slowing. But on closer inspection, it seemed these threats could be overdone and are unlikely to be an immediate threat.

We are therefore confident that the global economy should continue to provide conditions that are positive for equity investments, at least for the next three months.

The decision to take a more positive view on Europe specifically is due to our view that the euro will stabilise. The currency has performed well in recent months, rising in value when compared to sterling and the dollar. This potentially threatened the profits of European exporters, as the rise makes their products more expensive in overseas markets.

However, we think that European shares offer good value when compared to those in other global markets.

The main concerns we have about equities are within the US and UK. Share prices look expensive in the former, while the latter could suffer short- to medium-term negative economic consequences as the country leaves the European Union.

Bonds outlook negative

The prospects of rising inflation and higher interest rates are bad news for bond values. This is because most bonds pay a fixed return which becomes less attractive as interest rates or inflation rise and alternative investments, such as saving deposits, can increase the interest that they pay.

For this reason, our outlook for bonds has become more negative, especially in Europe, where the yield offered by some government bonds is close to zero.

We also think that corporate bonds (i.e. those issued by companies) in most countries are expensive and offer limited returns.

Neutral view on property

Our outlook for property remains the same. The uncertainty that surrounds the UK’s departure from the EU is likely to persist for some time, yet demand from overseas buyers remains strong. In part this is because UK assets have become cheaper because of the fall in the value of the pound.

But there are still some hotspots within the commercial property market. For example, online retailers’ demand for warehouses and logistics hubs has pushed prices up within the industrial sector over the past couple of years. Changes to shopping habits towards online purchases mean that this trend is likely to persist.

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Important Information

Forecasts of future performance are not a reliable guide to actual results in the future, neither is past performance a reliable guide to future performance. The value of investments, and the income from them, may fall as well as rise and cannot be guaranteed. Any views expressed are our in-house views at October 2017. Investment markets and conditions can change rapidly and the views expressed should not be taken as statements of fact nor relied upon when making investment decisions. This information may not be used, copied, quoted, circulated or otherwise disclosed (in whole or in part) without our prior written consent.

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