Market Update - 14 February 2018

Markets are struggling for direction at present as competing forces push and pull investor sentiment and confidence.
The main protagonist is the US, specifically potential US central bank policy change. What’s driving this is the recent uptick in wages, a soft US dollar, rising commodity prices (particularly energy), and increasing US government budget stimulus (eg. tax cuts) at a time when fiscal stimulus isn’t needed. Whilst none of the trends in data is new, the market has begun to fret that an inflationary spike might force the US central bank’s hand into a potential misstep (ie. raising rates too quickly).

Whilst US economic data has been healthy and improving for some time, the data is still well behind where it should be in light of the amount of stimulus the US central bank and government have provided since the GFC and given where we are in the business and economic cycles. What has caught everyone by surprise is how quickly and strongly economic data points have improved in Europe, and to a lesser extent, Japan.

Improving economic data is generally supportive of asset price growth in the long run, but not if it forces central banks to remove stimulus too quickly.

We continue to believe that all central banks will be very slow and measured in reducing and then removing stimulus over multi-year periods. However, central banks will use rhetoric, or silence in some instances, to help cool asset price growth where it’s out of line with underlying fundamentals. Right now this is key in point.

As such, in managing your portfolio, it means that we are:

1. Ensuring your portfolio has adequate diversification across and within asset classes, including the use of investments with different styles and approaches, and the use of differentiated return sources such as infrastructure and alternatives (where appropriate).
2. Not stretching for or chasing yield, which may come under pressure in a rate rising environment.
3. Actively reviewing the positions held to ensure they’re robust enough to navigate the market environment ahead
4. Taking advantage of opportunities when they arise, and only where appropriate
5. Not making knee-jerk reactions to noise - ie. market movements that have no basis
6. Still focused on the medium to longer term.


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This material has been prepared without considering any potential investor's objectives, financial situation or needs. This newsletter is of a general nature and does not consider the individual circumstances of its recipients. Any information contained within this publication should not be misinterpreted as advice in and way. Please consult your financial adviser should you have any questions or concerns.

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