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Flighty Markets

By Simon Angelo

When I was in the Channel Islands a friend asked me to go flying with him.  In his 1973 Piper Cherokee.  Of course, my 10-year old son wanted to come too.

I love small planes and getting up in the air.  But this trip filled me with some nerves.  My friend had once come close to putting down in a field when it got foggy and he couldn’t see the runway.  And he was working through some medical issues, which at times, stopped him from flying.

But if you want to live and see the island from above you must take a few small risks.  And so, on a blustery day we set off. 

The life raft in the back was a little unsettling.  In case we had to land on water.  And a few moments after lifting from the runway, you’re straight out above the English Channel.  Bumping in the wind.  Dropping and rising with your stomach.

Then there’s air traffic control.  Jersey is a busy air space.  Private jets.  The big Airbus’ constantly coming and going to the UK and across Europe for EasyJet, British Airways, and a host of others.

We were under strict instructions to keep below 1,000 feet.  EasyJet was coming in from Gatwick.

Heading up over the channel…  Source: Author photo
When we finally approached the cliff that led back to the runway and touched down, I felt both relieved and exhilarated.

And this is how it can feel these days to be in the financial markets.  There’s plenty of risk.  But some opportunity…

Where are we going in the markets?  And where are the opportunities?

On a fine day, the global dynamics favour the long-run buy-and-hold bull market many analysts predict to keep going.

It’s easy flying:
  • Perpetual low interest rates encourage appetite for risk assets like stocks.
  • Aging population, pensions and more people living off unearned income than at any other time before supports more money in the markets.
  • Fiscal economic management 2.0.  The new approach sees policy setters the world over seeking growth through loose monetary policy.
  • There are still spots of value in global markets.  Not all mid to large cap stocks are fully priced... yet.
But then there are numerous omnipresent risks.  These act like fog, planes overhead, turbulence – even engine failure.

The world is a dynamic place.  And especially dynamic today.

The US v. China trade war is still unresolved - although a truce of sorts has been called. 

You can see the markets buck and kick with every fresh update.  A deal could be reached.  Stocks surge.  No chance?  They plunge.

A likely outcome is an ongoing slowing of the Chinese economy as they continue to get called out on trade practices.

This has real and instant implications for Australasia. 

Australia’s iron exports have just dropped for the first time in 18 years.  When Japan’s demand for iron ore slowed in the 90s, China took up the balance.  If China steps back, the Australian economic miracle could quickly become a nightmare.

Here in New Zealand, our largest companies depend on Chinese exports.  Particularly to the domestic dairy market.  If spending pulls back there, we’re under threat. 

NZ is especially exposed.  The NZX is riding very high.  It seems to command a premium to the ASX in terms of average PE.  If a few large companies relying on Chinese business wobble, there’s the potential for a painful correction.
Performance update & strategy
June 2019 showed growth of 2.44% for the month across the composite portfolio (total aggregate, weighted return across all significant portfolios following the strategy). 

Yet, this was considerably bolstered by the largest and oldest portfolio in the mix that is more heavily weighted to Australasia.  These markets grew rapidly last month as the interest rate outlook softened, and investors plowed into yield stocks - for fear of missing out.

In Europe, where many of our newer clients and portfolios are focused (due to value opportunities) there was a draw down of around -1.32%. 

In Britain, Boris Johnson as the front-runner to takeover from Theresa May seems to have added to market fear.  The risk of leaving without a deal is heightened.  As markets hate that uncertainty, there's been a sell off.

Still, things could turn upward again as we head closer to Brexit and arrangements start to look more favourable.  If they are in fact more favourable.

Please see our performance chart for more details.
The month ahead
Growth is going to come down to finding value.  Meanwhile we offer income through excellent dividend yield picks - especially in Europe.

You don't stop flying because there are risks.  You take to the skies and find better places to go...

Regards,
Simon Angelo
CEO, Vistafolio

 

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*Past performance is not an indicator for future performance. Your actual portfolio will differ from the composite portfolio mentioned. Annualized returns are after management fees and after withholding taxes. The information contained in this document does not constitute an offer to sell or a solicitation to buy an investment, nor should it be construed as investment advice.  Vistafolio investment services are available to Eligible Investors and Wholesale Investors (not to Retail Investors) as defined in the Financial Markets Conduct Act (2013).
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