Market View for September 2017

China leads the way, negative outlook for bonds, and property uncertainty

China leads the way

Although investors have had concerns over the actions of North Korea, there has been some encouraging economic news from elsewhere in Asia. China, the world’s second-largest economy, continues to grow faster than any country in Europe or North America. During the second quarter of 2017 the Chinese economy grew by 6.9% compared to the previous year, and there are signs of more growth to come.

Consumer confidence in China grew during the second quarter of the year as workers became more optimistic about employment opportunities and prospects for wage rises. Chinese purchasing managers’ indices, which provide an indication of the health of companies, came in stronger than expected during August, indicating that businesses expect conditions to carry on improving.

Such is the size of the Chinese economy that it continues to power growth in Asia and across the world. This growth should continue to feed through to company profits. As a result, we don’t think that stock markets are likely to fall significantly. But neither do we think there will be major gains in the short term due to uncertainties surrounding North Korea and the ability of Donald Trump to push ahead with economic stimulus measures.

In terms of regions, we continue to favour Europe, where company share prices are less expensive than those in the US or UK.

Negative outlook for bonds

The outlook for government bonds remains clouded by the prospects of rising US interest rates. This is because interest-bearing cash savings, for example, are able to increase the return to investors as interest rates rise, while most bonds make a fixed payment to investors regardless of changes in the interest rate.

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

Property uncertainty

The outlook for UK commercial property remains uncertain due to the impending departure from the EU. However, property values have grown slightly during 2017. So-called industrial properties are performing best, mainly because the shift towards internet shopping means that retailers require more warehouse and transport capacity. This trend is likely to persist, which could counteract some of the uncertainty elsewhere.

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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 September 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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