As always there is a lot going on. We will have the budget answers by the next update, and by our Budget webinar at 6:00pm on the 6th of November, we should have a new US President. I say should, as there is considerable worry over the US electoral process and what may be the aftermath in any result challenge.
This week we have been delving into US economics with a visit from TS Lombard’s Chief US Economist Steven Blitz and last night a talk from my long term client (since 1999!) and global energy commentator, Stephen O’ Sullivan, on Putin and the Russia-Ukraine conflict. The intellect of both individuals was fully on display and undiminished and their insights were fascinating and illuminating.
According to Wikipedia, the Russia-Ukraine war is now in its 10th year with no obvious end in sight. Expect the US election noise to be all deafening in the next few weeks as the high drama unfolds.
What do they think will happen? Steve Blitz saw:
- A Kamala Harris victory on the strength of her fundraising success outstripping Donald Trump’s, but risk of an ugly aftermath if she does win.
- A weakening Dollar, needed to facilitate the US ambition to onshore industry and create jobs in America.
- Potentially rising US bond yields as inflation, whilst timid right now, will hang around and with a Federal Reserve less focused on the fight against inflation.
- A strong US stock market in the aftermath of the US election as and when uncertainty is removed and base interest rate reductions come through.
- The drop in base interest rates potentially favouring the broader market of big and medium size companies, boosted by lower funding costs than the cash rich mega cap tech companies.
Stephen O’ Sullivan saw the manpower to keep up the fight as potentially the limiting factor in the Russia-Ukraine conflict, with ultimately a negotiated settlement allowing Russia to keep its seat at the world’s power table.
Elsewhere, China’s equity market rose 25% in one week as a coordinated effort was announced to stabilise the Chinese housing market and boost the economy. Not all of those gains held, but we have seen an impact on our Asian and Emerging Market funds which have all had a lift.
Meanwhile, we are getting into Q3 corporate results announcements when the stock market’s valuation of a business gets a reality check as we see the progress of the company’s revenues and profits.
So far so good, with more good results than bad, although we are yet to see the most highly valued mega tech companies report.
Strong results have been in from US banks such as JP Morgan and Goldman Sachs. Private equity investor Blackstone is doing well, with higher long-term yields and, as base rates fall, semi-conductor giant TSMC jumped around 10% on its strong results and, just in, Netflix looks set to jump 6% in value when the US market opens on the back of its results.
Despite the background noise it seems many companies are doing pretty well. There have been a few shockers. Netherlands listed ASML (which makes chip manufacturing machines for firms such as TSMC) fell 17% after its results, luxury goods giant LMVH reports a continuing sluggish Chinese demand for its goods.
We will have to wait till the end of the month to see the big tech earnings coming in, although already some look under pressure. Elon Musk’s late arrival at his robo-taxi show – on a Hollywood set rather than on the streets of a major city, where some of his competitors are already running driverless services, failed to impress investors. Slipping time frames, sparse detail, and revelations that Tesla’s robots were remote controlled that evening rather than AI controlled, saw Tesla’s stock fall around 9% the next day.
For our part, we are happy to let the active managers make the moves and hold steady with our current fund allocations. We were pleased to hear Steve Blitz confirm he was not worried about credit spreads widening, affecting our fixed income fund selections. We remain mostly short duration, which insulates us largely from any increases in long term rates. We have mostly Sterling exposure in our fixed income, so a lower Dollar would not impact our returns.
We had been considering reducing our Asia equity exposure but didn’t. Sometimes inaction is the best action.
For now, we are seeing our portfolios continue to perform strongly both in absolute terms and relative to our peers, long may it last!
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