Reasons to be cheerful: Part 4

Neil Birrell

Premier Miton’s Chief Investment Officer

Time flies

At this time three years ago, I would have been sitting here writing that the outlook for the world economy was somewhat grim and that expectations were for a marked economic slowdown and probable recession. Those expectations were more driven by the overall economic backdrop than the risks from COVID which, at that point, were a little understood, nascent threat.

Well, recession did arrive. The impact of COVID threw us into an economic collapse not experienced for centuries. Through the early months of the pandemic these notes did not contain much good news, but it was not all bad news and, from a financial markets perspective, it was important not to get too wrapped up in the negativity. Therefore, I wrote “Reasons to be cheerful, part 1” followed by parts 2 and 3 in subsequent months. It now seems appropriate to write part 4.

Reaching for the dictionary

Other than the world war years, it is hard to imagine a period that has been as tumultuous as the past three years. The shock and desperation during the worst of COVID, the reopening of society and the economic consequences, followed by the invasion of a sovereign state by an aggressor within Europe and booming inflation and rapidly rising interest rates, left us reaching for the dictionary to find suitable adjectives to describe such times.

When it came to economies and financial markets there was a clear winner for all you crossword fans; unprecedented. But it was closely followed by; amazing, extraordinary, astonishing, remarkable and volatile.

What we would give for 2023 to be; predictable, conventional and maybe even boring. Unfortunately, that seems unlikely.

There may be trouble ahead

Before moving onto the cheerful part of this note, I need to take a step back. I spend much of my working life worrying. There is a long list of topics, but they can be put into a small number of categories; the investment outcomes Premier Miton are producing for investors in our funds, the economic and financial market outlook and our business and people. Although, they are all interlinked to one degree or another.

For this purpose, I will just consider the outlook for economies and markets; there is plenty to worry about.

In the world’s second largest economy, China, the explosion of COVID cases led to zero-COVID rules being applied by Xi Jinping and his government. China has been the engine room of global economic growth for a long time now and the prospects for the economy have taken a big hit, which will have ramifications for the rest of the world as manufacturing output falls and supply chains contract.

In Europe, the quest for growth has been failing for some time and the cycle of rising interest rates and inflation has knocked prospects further. Meanwhile, at home, dire public finances are the latest dampener to growth and headlines about how the tax burden is going to rise significantly may only make matters worse.

Overall, the economic outlook is not great for the coming months, which has been the case for some time and explains the disappointing returns in 2022 for the major asset classes of bonds, equities and property across most regions.

Let’s get to the good news

Let us start with the country where things are worst, China. There is clear and positive movement in their approach to COVID restrictions, with the disease being downgraded in classification, international and national travel restrictions being eased and lock down measures relaxed. It will not be instant, but it is an important change for the Chinese and global economy.

The US is the world’s most important, dynamic and entrepreneurial economy. It usually comes out of difficult periods stronger and more quickly than anywhere else and with inflation looking like it may have peaked and interest rates expected to hit highs in the first half of 2023, the outlook is good.

I think one country that could be a major driver of growth in the coming years is India. We do not write about it much, but with a population of over 1 billion, the economy is now larger than that of the UK, in fifth position globally. A State Bank of India report said India will surpass Germany in 2027 and most likely Japan by 2029 at the current rate of growth. The scale and speed of this growth would have a significant positive influence on the global economy.

We should also not forget some of the key drivers of economic growth over the last few years which have not gone away, indeed many are accelerating; transition from fossil fuels to affordable and clean energy, digitalisation and greater healthcare for growing and aging populations, whilst sustainability in its widest sense will generate growth.

The changing long-term trends in society will require massive investment from the public and private sectors and stimulate economic activity. Interestingly, some of these, in particular the ongoing use of technology, can help slow inflation. Technology has a long track record of making products and processes cheaper, faster and better. Digital transformation and adoption of technological solutions can be used as a long-term strategy to combat higher inflation by increasing productivity through automation. More good news!

So, what is the good news when it comes to financial markets?

I ran through my thoughts in this note last time. To summarise; in my view, areas of the bond market are now providing attractive returns for the level of associated risk being taken and equity markets could struggle in the short term but look attractive in the long term.

In these notes I tend to refer to “financial markets” and “assets” and their prospects, but it is particularly important to remember two things. Firstly, financial markets and asset classes are not homogeneous, they are deep, broad, highly diversified and provide all levels of risk and return potential.

Secondly, we, Premier Miton, are active fund managers which means the funds we manage do not replicate any market, asset class or sector; they are very different, focusing on where we see the best opportunities. Furthermore, this means we will adjust the funds’ investment portfolios on an active basis, as conditions change.

I have been struck over the past few weeks by what our fund managers are telling me they are seeing. The managers of our US equity funds recently came back from a trip to the US to meet a large number of companies over there enthused by the new opportunities they had found and the prospects for the US overall.

The team that invests in property companies in the UK and Europe have been under pressure in 2022, due to challenges within their asset class, but see valuations of these companies at lows only seen in the recession of the 1990’s and during the global financial crisis. In the UK, the fundamental outlook may not be too rosy, but our fund managers are genuinely excited about what the next few years have in store for their investments. I could go on, so I will; I have not seen our bond experts enthuse about their asset class before, now they will not stop!

The returns provided by the broad group of funds with a strategy based on Environmental, Social and Governance (ESG) or sustainable criteria suffered in 2022 after very good years in 2020 and 2021. These investment strategies can be diverse in nature, as the definitions of their investment universes differ. However, if taking a clearly defined and established approach to this strategy, as we believe we do, then the long-term opportunity is another area to feel positive about in my view.

I think that gives you some reasons to be cheerful about the outlook for financial markets. But, I could be wrong and you should take both financial advice and a long-term view when investing your money.

The last (cheerful) word

To those of you who read these notes regularly, thank you for your interest and indulgence. To all of you who have got this far through this one; here is to 2023 being predictable, conventional and maybe even boring, and hopefully profitable.

How would you rate the information in this article?

Click on a star to rate it.

We are sorry that this post was not useful for you.

Write your comments here:

Tell us how we can improve this post?

Risks

Past performance is not a reliable indicator of future returns.

The information provided in this document is for information purposes only and is not intended to be a recommendation for investment purposes or investment advice. The information contained and opinions expressed in this document are based on our current understanding and are subject to change. Premier Miton is unable to provide investment, taxation, or financial planning advice.

The value of stock market investments will fluctuate, which will cause fund prices to fall as well as rise and you may not get back the original amount invested. The value of your investment might not keep up with any rise in the cost of living.

Government and corporate bonds generally offer a fixed level of interest to investors, so their value can be affected by changes in interest rates. When central bank interest rates fall, investors may be prepared to pay more for bonds and bond prices tend to rise. If interest rates rise, bonds may be less valuable to investors and their prices can fall.

The share price of companies (equities) can experience high levels of price fluctuation. The share price of companies (equities) can experience high levels of price fluctuation.

Reference to any particular investment or asset class does not constitute a recommendation to buy or sell the investment or asset class.

Forecasts are not reliable indictors of future returns.

Glossary

Active management
An approach to investing whereby a fund manager invests according to their judgement. The active investor aims to beat the returns from an asset class, such as company shares or bonds, or specified benchmark index/sector, rather than to match them.

Asset class
Different groups of investments such as company shares, bonds, commodities or property.

Bonds (or fixed income)
Types of investments that allow investors to loan money to governments and companies, usually in return for a regular fixed level of interest until the bond’s maturity date, plus the return of the original value of the bond at the maturity date. The price of bonds will vary, and the investment terms of bonds will also vary.

Equities
Another name for shares (or stock) in a company.

IMPORTANT INFORMATION:

The views expressed in this document should not be taken as a recommendation, advice or forecast. We are unable to give financial advice. If you are unsure about the content of this document, please speak to a financial adviser. The value of stock market investments will fluctuate, which will cause fund prices to fall as well as rise and you may not get back the original amount you invested.

Whilst every effort has been made to ensure the accuracy of the information in this document, we regret that we cannot accept responsibility for any omissions or errors. The information given and opinions expressed are those of the author at the time of writing and do not constitute advice. These views are subject to change and do not necessarily reflect the view of Premier Miton Investors.

Financial Promotion issued by Premier Portfolio Managers Limited, (registered in England no. 01235867), authorised and regulated by the Financial Conduct Authority, a member of the Premier Miton Investors marketing group and a subsidiary of Premier Miton Group plc (registered in England no. 06306664). Registered office: Eastgate Court, High Street, Guildford, Surrey GU1 3DE.

008532/040123

Stay up to date

Sign up to receive the latest articles straight to your inbox

Main Disclaimer

Disclaimer

This section of the website and the content it contains is for retail clients only and by persons who are resident in the United Kingdom [who are not US persons]. Professional advisers should refer to the Professional Advisers site.

The content of the pages of this website is for your general information only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

You acknowledge that such information may contain inaccuracies or errors and we expressly exclude liability for any such inaccuracies or errors to the fullest extent permitted by law. Your use of any information or materials is entirely at your own risk, for which we shall not be liable.

The information contained on this website does not constitute an offer or solicitation to sell or purchase shares in the funds or portfolios or to provide you with other products or services. Any application or investment must only be made on the basis of the relevant documentation of the investment, such as, for example, terms and conditions. The information on this website does not constitute any investment, tax, legal or other advice. Persons who do not have professional experience in matters relating to investments should always consult with an independent financial adviser before making an investment decision. Any opinion expressed on individual funds, services or products represent the views of the individual at the time of preparation and should not be interpreted as a personal recommendation to buy or sell or otherwise trade all or any of the investments that may be referred to.

Website terms of use: Please ensure you have read and accept the full 'website terms of use' before continuing.

Read the full 'website terms of use' >

Disclaimer

This section of the website and the content it contains is for professional financial advisers only and should not be relied upon, or circulated to, retail clients. Retail clients should refer to the Private Investor's site.

The content of the pages of this website is for your general information and use only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

You acknowledge that such information may contain inaccuracies or errors and we expressly exclude liability for any such inaccuracies or errors to the fullest extent permitted by law. Your use of any information or materials is entirely at your own risk, for which we shall not be liable.

The information contained on this website does not constitute an offer or solicitation to sell shares in the funds or portfolio or to provide you with other products or services. Any application or investment must only be made on the basis of the relevant documentation of the investment, such as, for example, terms and conditions. The information on this website does not constitute any investment, tax, legal or other advice. Persons who do not have professional experience in matters relating to investments should always consult with an independent financial adviser before making an investment decision. Any opinion expressed on individual funds, services or products, represent the views of the individual at the time of preparation and should not be interpreted as a personal recommendation to buy or sell or otherwise trade all or any of the investments that may be referred to.

Website terms of use: Please ensure you have read and accept the full 'website terms of use' before continuing.

Read the full 'website terms of use' >

The content you are trying to access is intended for investment professionals only.

Please use the button below to return to the hompage.

Main Disclaimer

Disclaimer

This section of the website and the content it contains is for retail clients only and by persons who are resident in the United Kingdom [who are not US persons]. Professional advisers should refer to the Professional Advisers site.

The content of the pages of this website is for your general information only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

You acknowledge that such information may contain inaccuracies or errors and we expressly exclude liability for any such inaccuracies or errors to the fullest extent permitted by law. Your use of any information or materials is entirely at your own risk, for which we shall not be liable.

The information contained on this website does not constitute an offer or solicitation to sell or purchase shares in the funds or portfolios or to provide you with other products or services. Any application or investment must only be made on the basis of the relevant documentation of the investment, such as, for example, terms and conditions. The information on this website does not constitute any investment, tax, legal or other advice. Persons who do not have professional experience in matters relating to investments should always consult with an independent financial adviser before making an investment decision. Any opinion expressed on individual funds, services or products represent the views of the individual at the time of preparation and should not be interpreted as a personal recommendation to buy or sell or otherwise trade all or any of the investments that may be referred to.

Website terms of use: Please ensure you have read and accept the full 'website terms of use' before continuing.

Read the full 'website terms of use' >

Disclaimer

This section of the website and the content it contains is for professional financial advisers only and should not be relied upon, or circulated to, retail clients. Retail clients should refer to the Private Investor's site.

The content of the pages of this website is for your general information and use only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

You acknowledge that such information may contain inaccuracies or errors and we expressly exclude liability for any such inaccuracies or errors to the fullest extent permitted by law. Your use of any information or materials is entirely at your own risk, for which we shall not be liable.

The information contained on this website does not constitute an offer or solicitation to sell shares in the funds or portfolio or to provide you with other products or services. Any application or investment must only be made on the basis of the relevant documentation of the investment, such as, for example, terms and conditions. The information on this website does not constitute any investment, tax, legal or other advice. Persons who do not have professional experience in matters relating to investments should always consult with an independent financial adviser before making an investment decision. Any opinion expressed on individual funds, services or products, represent the views of the individual at the time of preparation and should not be interpreted as a personal recommendation to buy or sell or otherwise trade all or any of the investments that may be referred to.

Website terms of use: Please ensure you have read and accept the full 'website terms of use' before continuing.

Read the full 'website terms of use' >