In this week’s film, Senior Portfolio Manager Anthony Rawlinson reflects on a good week for equities, particularly in Europe, as markets react to the latest announcement from the European Central Bank on extending its bond-buying programme into 2017.

Market Update

Last week there was a strong performance from developed equity markets. The FTSE 100 climbed 2.6% and the S&P 500 added 2.5%. Supporting factors for equities continue to be a strengthening US economy and improving sentiment on the European economy. In this regard, the announcement by the European Central Bank (ECB) that quantitative easing (QE) will be extended into 2017 was a key driver of the markets.

Brent crude, the international oil benchmark, has firmed at $53 a barrel following OPEC’s agreement to trim production in the coming months, while sterling settled into a $1.24-25 trading range.

 

ECB President Draghi

The most significant news from the latest meeting was President Mario Draghi’s announcement that the ECB would extended its bond-buying programme (QE) into 2017, though the monthly purchases would be trimmed from €80bn to €60bn beginning in March 2017.  Draghi’s comments reinforced his previous assertions that the ECB would “do what it takes” to support economic recovery in Europe.       

Given speculation ahead of the meeting that the ECB might start to ‘taper’ its bond buying, markets reacted positively to the news.  

 

What does it mean for the Coutts House View?

We believe last week’s strong showing from developed equities endorses our positive stance on European equities in our portfolios. We believe valuations remain attractive and see positive earnings growth for the asset class into 2017.

While government bonds remain a good diversifier within portfolios, we continue to believe that in an environment of rising interest rates their prospects for generating positive returns are poor. We continue to favour investment-grade (higher credit quality) corporate debt, which in our view offers more attractive yields for our portfolios compared to government bonds. We also believe the higher yields adequately compensate for the additional risk of corporate debt, especially given a favourable economic outlook.

Emerging Markets

Emerging market equity has continued to perform well in recent weeks. Coutts currently allocates  about 7% in a typical balanced investment solution,  holding exposure through a range of third-party funds. These are up by about 35% in the year to date in sterling terms, providing a good boost to performance.

After several years of emerging markets struggling to gain momentum, sentiment finally appears to have shifted with greater focus on fundamentals.  Having a robust investment process and a firm set of investment principles has supported our positioning. There may be headwinds in the short term as trade policies evolve but over the longer term we continue to see value and diversification benefits.

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Anthony Rawlinson

Senior Portfolio Manager

Anthony is a Senior Portfolio Manager in Client Investment Management and Wealth Structuring, having joined Coutts in 2011, and is responsible for running client portfolios for high net worth individuals.

Prior to joining Coutts, Anthony was Head of Private Banking for Standard Chartered Bank in Abu Dhabi and a Director for Merrill Lynch International Wealth Management in the UAE. He has 19 years of experience in private banking and wealth management.

IMPORTANT INFORMATION

This webpage is produced by Coutts for information purposes only and for the sole use of the recipient and may not be reproduced in part or full without the prior permission of Coutts.

The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.

Past performance should not be taken as a guide to future performance.

In the case of some investments, they may be illiquid and there may be no recognised market for them and it may therefore be difficult for you to deal in them or obtain reliable information about their value or the extent of the risks to which they are exposed. Where an investment involves exposure to a foreign currency, changes in rates of exchange may cause the value of the investment, and the income from it, to go up or down. Investments in emerging markets are subject to certain special risks, which include, for example, a certain degree of political instability, relatively unpredictable financial market trends and economic growth patterns, a financial market that is still in the development stage and a weak economy.

The information in this webpage is not intended as an offer or solicitation to buy or sell securities or any other investment or banking product, nor does it constitute a personal recommendation. Nothing in this material constitutes investment, legal, credit, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you.

The information in this webpage is believed to be correct but cannot be guaranteed. Any opinion or forecast constitutes our judgment as at the date of issue and is subject to change without notice. The analysis contained in this document has been procured, and may have been acted upon, by Coutts and connected companies for their own purposes, and the results are being made available to you on this understanding. To the extent permitted by law and without being inconsistent with any applicable regulation, neither Coutts nor any connected company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon such information, opinions and analysis.

This document has been produced by Financial Advice & Investment Solutions at Coutts and does not constitute investment research. Neither this document nor any copy thereof may be sent to or taken into the United States or distributed in the United States or to a US person. In certain other jurisdictions, the distribution may be restricted by local law or regulation.

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