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Weekly Investment Update

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Summary

Lilian Chovin examines the health of the economy and the start of earnings season

3 min read

In this week’s film, Lilian Chovin examines the health of the global economy, the gradual removal of monetary easing and the start of the Q2 reporting season.

“Overall, we remain in a benign environment characterised by reasonable growth and low inflationary pressure, which reinforces our continued preference for equities over bonds.”
Video player requires JavaScript enabled. You can watch this video here: https://www.youtube.com/watch?v=9ZIC7_bdBNU

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Our Key Messages This Week are:

Global economy continues to support equities

We have seen synchronised economic expansion worldwide for the first time since 2010, with positive manufacturing growth across major economies. This means the global economy is not relying as much on one country or region for growth and will be better able to sustain any small shocks. 

Our outlook for the second half of the year remains positive, with global GDP expected to grow at around 3% in the second quarter of 2017. However, we expect economic activity to slow slightly, due to tightening credit conditions in China and a cyclical manufacturing slowdown in the US.

Overall, we remain in a benign environment characterised by reasonable growth and  low inflationary pressure, which reinforces our continued preference for equities over bonds.

 

Investors need to adjust to higher interest rates

Bond yields have risen across the world as central banks in the US, UK and Europe revealed they were considering removing some of the stimulus that has helped shore up economies since the financial crisis.

As investors adjust their expectations, we are seeing some pressure on bond and equity markets as  rising rates typically weigh on valuations. In what can be seen as a challenging environment for many multi asset managers, a typical balanced portfolio has benefitted from our low allocation to UK gilts and preference for alternative assets. This demonstrates how important diversification is across and within asset classes and why it is one of our key investment principles at Coutts.

 

Earnings season

As earnings season approaches, we expect most companies to publish strong year-on-year profit growth due to weak earnings in the first half of 2016 and robust economic activity since. At this stage of the economic cycle, with high equity valuations, earnings become even more important to markets and could be a source of potential volatility. 

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With unstinting focus on client objectives and capital preservation, Coutts Investments provide high-touch investment expertise that centres on diversified solutions and a service-led approach to portfolio management. Our investment process is as disciplined as it is creative – ensuring tailored solutions with robust results.

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