The three main factors driving asset allocation

0
Written by: Jason Stather-Lodge
05/11/2015
October on the whole was a stellar month for markets, particularly for investors in the US equity market, who will have seen gains of almost five per cent from the S&P 500 and over eight per cent from the technology heavy NASDAQ.

Whilst the last seven days have been largely flat as markets paused for breath, there are three main factors currently driving our global asset allocation decisions.

 

  1. US tech earnings initiate market highs

Before the summer sell off, shares across the main US indices were trading at, or close to, their historic highs. We are now reaching those levels again.

The earnings season has surprised with many companies, such as Apple, posting better than expected earnings results. The tendency has been for  pharmaceuticals, health care and technology stocks to have better than expected results compared with those in natural resources, for example. This has meant the NASDAQ index, which is full of technology and biotech companies, has performed better than all the global indices mentioned below. This is closely followed by the S&P 500, which is used as a broad barometer of the US economy.

The US Federal Reserve has also hinted towards an interest rate rise this year rather than next. This sentiment, alongside good economic data, has been the fuel driving US markets upwards.

 

  1. European equities and the potential of further QE

 In sterling terms, only the German DAX Index was in positive territory over the last week. This was largely owing to uncertainty around the ECB plan for QE, but also the fact that most of these European indices have seen large outperformance during the previous month.

The prospect of further monetary stimulus has driven stocks higher since Mario Draghi’s comments about adding to the QE program if the data showed that it needed it. However, the uncertainty has seen the euro slip against the US dollar and some analysts believe it could weaken even further.

Should the ECB add to the QE program, it will do two things. Firstly it will provide a floor as more high quality assets are being purchased, and secondly it will move the currency lower, which, in turn, provides an advantage for European companies exporting their goods.

Either way, owning European equities at present, particularly those large businesses that are likely to benefit from exports, looks to be a good option despite the recent moves.

 

  1. The Chinese consumer

Whilst some of the data coming out of China continues to look slightly deflated, we note the comments of the chief economist from the People’s Bank of China (PBOC) saying that the recovery in property sales, coupled to the easing of monetary policy should support growth.

What this statement confirmed is that our view of China is not as bad as others have been led believe. Data confirms that the Chinese consumer is robust as is spending on services, which, alongside the strengthening in residential building, should help stimulate the economy once more. The PBOC stated they expect their own stimulatory measures to the economy to start kicking in, whilst the impact of these on the real economy has a time lag of approximately nine months.

Add this to the recent estimates from the International Monetary Fund (IMF) that the global outlook should be positive for China overall, then we expect the sentiment on China to recover at a modest pace in the coming months.

 Jason Stather-Lodge is CEO of OCM Wealth & Asset Management

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

ISAs: your back-to-basics guide for 2018/19

Here’s everything you need to know to make the most of your unused ISA allowance ahead of the 5 April deadli...

A guide to Sharia savings accounts

A number of Sharia savings products have upped their game in recent months, beating more familiar competitors ...

Five ways to get on the property ladder without the Bank of Mum and Dad

A report suggests the Bank of Mum and Dad is running low on funds. Fortunately, there are other options for st...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Money Tips of the Week

  • RT @STEPSociety: UK Ministry of Justice abandons plan to increase EW probate fees, described by STEP’s Emily Deane TEP as a stealth tax on…
  • UK Ministry of Justice abandons plan to increase EW probate fees, described by STEP’s Emily Deane TEP as a stealth… https://t.co/sUbYMynhPC
  • RT @jilly284: @YourMoneyUK 200k #ukmortgageprisoners have been put in financial misery for over a decade through no fault of their own. Hom…

Read previous post:
BLOG: FCA turns a blind eye to credit card market failings

The long awaited FCA study into the credit card market has overlooked some of the biggest problems for consumers.

Close