"Development is about transforming the lives of people, not just transforming economies" (Joseph Stiglitz)So Quarter 1 has come to an end and whilst some parts of the world celebrate the Easter holidays, we can reflect on a difficult month of March and a difficult volatile start to 2018.
Although we are always going to get the occasional bump, poor month with equities, the last two months have seen more severe drops placing most markets into negative territory for the quarter, a position we have not seen for some time. So the raw data being:
Dow Jones -3.7% -2.5%
Nasdaq -2.3% +2.3%
FTSE -2.4% -8.2%
Nikkei -1.6% -5.8%
SSE -2.8% -4.2%
Dax -2.7% -6.3%
And on the currencies we continue to see a gradual slide on the US$ against most major currencies, the Australian dollar being the exception......
GBP -2.2% -3.8%
EUR -1.1% -2.8%
JPY -0.5% -5.8%
AUD +0.6% +1.6%
CNY -0.9% -3.5%
So what to do amongst this sea of red - not to mention the volatility which has been quite frightening also? As I always say, we invest our clients money for the long term, don't focus on the short term, the emotions which cause markets to move or events which simply cannot be predicted. If I say it one I'll say it 1,000 times, predicting the future is a futile exercise.
The last month saw a couple of events have massive effect on the share price of two of the most innovative companies of our time.If you had invested US$10k in Facebook and US$10k in Tesla at the beginning of March that investment would have been worth just over US$16k today, the kind of hit no one wants to make.
The Facebook data breach and the tragic accident with one of Tesla's cars were the catalysts for these sharp falls in their share prices (Followed by market emotion). Neither of these events could be predicted (again futile). But the fact remains that Tesla's technology will play a part in our future and there will be more Facebook users tomorrow than there are today and more the day after. Focusing on a short term drop in share value for investors (not traders) is not relevant to obtaining long term growth. Over the last five years, Facebook would have made you 488% , Tesla 548%...not bad
Only professional investors or traders (gamblers) should be owning direct equity anyway. Well managed funds are the key to spreading your risk so you are not vulnerable to the falls such as mentioned above. A couple of funds you always hear me mention illustrate the point. the Janus Henderson Fund (which would own Facebook) is still up 7.5% this year, over 5% better than the Nasdaq and representing a 30% annualised return in a time when markets are down (appreciate the tech sector still being positive)
Another fund you always hear me talking about Lindsell Train, is down 1.4% for the year. LT invests approximately half UK half US so its benchmark for the year would be around -5%. Not only do good managers outperform the market when things are going well but when there are downward trends, they do not see their funds fall as far. Another reason to choose active over passive. This is what these people are paid to do. Thousands of hours of analysis take place not only to increase the probability of good growth but also to protect you on the downside. I still meet too many people who believe they can beat the market with individual shares and dare I say it Crypto currencies. But as you an see you are playing a risky game with this.
The Bitcoin brigade seem to have disappeared from my various Facebook / twitter feeds etc. This has now fallen below US$7,000. Lots of noise was being made at the end of 2017 , start 2018 when the price reached just shy of US$20k.
Some die hards (who may or may not have been invested) will still point to the return in 12 months of around 700%. But do you really want to be in an investment which has been as low as $1k and as high as 20k in 12 months. We talk about the volatility in the equity markets this is 100 fold ....Yes sure enjoy trading it but for long term capital growth , not for me. Its also still worth putting its relative size into perspective, the value of all the bitcoin in existence is less than the market cap of McDonalds and about a quarter of that of Facebook. a niche market.
It's people and the consumer, especially like our friends in the above picture from the developing world who will drive the growth, spending money on the same things people in the developed world do, perhaps Facebook advertising and eventually driverless cars..... .
"Buy low and sell high. It's pretty simple. The problem is knowing whats low and whats high" (Jim Rogers)So after months of upward momentum, finally the bears have come out from whatever they were doing in the woods shouting "I told you so" as results across the board for February were negative as follows:
Dow Jones -4.3% +1.3%
Nasdaq -2.4% +4.8%
FTSE -4.0% -5.9%
Nikkei -6.7% -4.2%
SSE -5.8% -1.5%
Dax -5.7% -3.7%
On the currencies, with the hawkish views of the new Chair Fed Jerome Powell we saw the dollar begin to strengthen again, most notably yesterday when Jerry hinted we might get four rate rises this year instead of three....
GBP +3.1% -1.6%
EUR +1.6 -1.7%
JPY -2.6% -5.3%
AUD +3.6% +1.0%
CNY +0.7% -2.6%
So what is the root cause of the the drop and the volatility we have seen in February? One word interest rates.
When the Dow Jones suffered its "biggest fall in history" on 5th February, all the media outlets were quick to jump on this , sensationalise / scare. There was a market sell off, its that simple. There was talk of the 10 year treasury surpassing 3%, more interest rate rises in the US and I guess some fears about valuation in certain sectors (most tech funds had made 40 - 50% returns in the preceding 12 months so why not sell and take some profit). I have been doing this all the time as I hope you have.
But again to put this "biggest fall in history" into perspective, it was due to the shear strength of the market as to why it was the "biggest". That day the Dow fell 1597 points which was a fall of 6.2%. In August 2015, in one day the Dow fell 6.6% but yet that only equated to a 1089 points drop....shows how far we have come.
By the way all of those losses had been recovered by close of play on the 7th February so a full 48 hours for sense to go back into the markets and traders buying the dip.....far from the financial crisis many annoying media outlets would have you believe.
Interest rate rises happen because the economy continues to strengthen. US unemployment has fallen continuously since 2009 when it peaked at 10% to now where it is at 4.1%. This means we are finally seeing some inflation, so the Fed have to react to this. But in reality, good luck finding anything better than 1% unless you want your funds tied up for considerable periods of time on cash.
And this is only the US Dollar , the Euro and British pound have no reason to rise their rates. Well invested funds have averaged over 20% per annum in the last five years. Whilst we cannot expect this level to continue forever, the companies themselves certainly believe the bull market is here to stay.
This year Goldman Sachs noted that there has been record share buybacks from companies, US$177 Billion so far. Don's tax cuts will also inject a further US$1.4 trillion into these companies.
Nobody ever likes to see the value of their portfolio fall, even if it is in the very short term but if you want a return on your money, well managed funds owning good companies is the way to go. Whist I'm not sure we can continue at 20% (and I hope we have all loved every minute of these returns) , 10% per annum I think is achievable.
So for me , having money in cash / treasuries , which may pay me approximately 2% per annum over the next 10 years is simply not even an option to consider...though I guess for some it is.....
"Success is not final, failure is not fatal, it's the courage to continue that counts" (Winston Churchill)
The first month of 2018 has continued in the positive manner of 2017, with a stellar month especially in the US. Regardless of other effects Donald's stewardship has, having a businessman in the White House so far has been good for the economy.
One thing is for sure though Donald will be the first to tell you that it was down to his decisions why the US markets are experiencing such tremendous growth, growth I believe is here to stay
The FTSE was the only laggard, mostly due to the ever strengthening pound given the revenues of many of the top index earners are in other currencies, anyhow the data for the month..
On the currencies, the USD continued to weaken, again something Donald has wanted to stimulate exports and no doubt he won’t be shy in taking the credit. The Pound is finally back in the $1.40 range, a rate that looks recognisable post Brexit and the Euro also continues to gain strength…so the greenback fell as follows:
Successful investing in the markets can be summed up in two words "asset allocation". Knowing when to take a profit is important but as someone who is focused on long term capital growth, to coin the Warren Buffet phrase its "Time in not Timing", and whenever profit is taken it has to be reinvested somewhere.
Regular readers will know that two of my favourite managers are Terry Smith of Fundmith and Nick Train of Lindsell Train. In 2015 it made the news when Nick Train bought his first stock for the fund in four years. Some may argue that is lazy management, after all he is taking a fee to buy & sell the right companies.
The fund though was one of the best performing (and it continues to be) so the investors are getting a good return on their investment, which after all is the name of the game.
Nick, Terry, Warren's philosophies about doing the proper research and analysis so you end up buying quality companies and trusting them to give you the return is a tried and tested way to make money.
Of course no one is going to get it right all of the time and whenever you realise that you have made an error, you do need to be brave enough to fix it. Selling at a loss is one of the most difficult things to do, especially if the markets are going up.
Our job like the fund managers is to position clients in the right areas. Its all about making the right choices, the correct decisions.
One of the stories of January was the reverse takeover by Keurig Green Mountain of drinks firm Dr Pepper Snapple. During the day at one point the shares were up over 40%. Both Fundsmith and Lindsell Train had relatively high exposure to this company at 3.8% and 1.8% weightings respectively.
Investors in these funds benefitted from the manager's good choices. We all make good choices but as Ken Basin pictured above, who got all the way to the million dollar question only to get it wrong, will attest to ...some times we also make bad ones.....
"I wouldn't say I was the best manager in the business. But I was in the top one" (Brian Clough)
Happy New Year.....
Lets all hope that 2018 is as prosperous for you as 2017 was. If you didn't have a stellar year with your portfolios / pensions , and by that I mean at least a 15% return, then hopefully I'll be getting a call from you early Jan... :-)
So the raw data
Dow Jones +1.8% +25.1%
Nasdaq +0.4% +28.2%
FTSE +4.9% +7.6%
Nikkei +0.2% +19.1%
SSE -0.3% +6.5%
Dax -0.8% +12.8%
And on the currency markets, the US Dollar had a mixed month against major currencies. A lot of commentators are suggesting we have a weak USD and in fact this is a contributor to the US market returns.
As a Brit who continues to think in GBP, I cant quite grasp that concept, as one pound still only buys you $1.35. I would say the dollar isn't cheap nor expensive though against the EUR and AUD I would expect to see it claw back some of those 2017 losses. .....the monthly / annual movements versus USD:
GBP +0.2% -9.4%
EUR -0.6% -14.1%
JPY +1.0% -3.7%
AUD -3.2% -7.8%
CNY -1.7% -6.3%
So what can we expect for the coming year ahead? Are we going to see equities crash? Should we all buy Bitcoin. Will commodities make a comeback?
The answers of course is no one knows. If I have said it once I have said it a thousand times predicting the future is a waste of time, so why do it? After all no one knows for sure what will happen tomorrow let alone in the next 12 months.
Of course in my line of work its important for me to have educated ideas about which areas of the markets will gain my clients the best growth and where perhaps should be avoided. Regular readers know that Technology, Healthcare and Consumer Staples have been sectors I have favoured as I believe there is inherent growth here. Although for the long term approach I still own personally and for clients funds in these areas I do appreciate that with the recent gains in Technology, its time to lock in some of those profits so I am advising clients to sell half.
As well as market sectors, having the correct diversification geographically is also important. Emerging Markets are an area which all clients should own though the term is rather ambiguous. Emerging Markets could be say Malaysia and Poland, yet there is little correlation and you may well be bullish on Malaysia and Bearish on Poland or vice versa.
If I was to go out on a limb here then India and Latin America would be where I would suggest the best potential for growth exists. How you invest in these areas is with good fund managers who buy good companies. Buying the brains or following the Smart money are two philosophies I follow which allow me to obtain long term capital growth for my clients.
Probably the greatest manager of all time was a guy called Peter Lynch who worked for Fidelity in the 1980s. With exactly the same information that everyone else had, during his tenure as manager of the Magellen Fund, had you handed Peter GBP100k to "play with" in 1977, by the time he retired as manager of that fund in 1990 you would have a cool GBP2.7m...Cheers Pete
And this was during a period when the US experienced three recessions and in October 1987 the markets fell by over 22% in one day, almost double the second worst day in history. Despite these setbacks, Peter still managed to average 29.2% per annum return for his clients.
As with all walks of life, there are superstars out there. You have heard me talk on numerous occasions about Terry Smith and Nick Train. Whilst not quite emulating Mr Lynch's incredible returns, over the last ten years they have averaged around 16% - again this period including the 2008 crash. With this level of profit you would have earned you GBP1m on a 100k investment in 15 years.
Go back 12 months and another name to add to Messrs Smith and Train would be Neil Woodford. I still buy Neil's fund although he has struggled to the point where his performance in the last 12 months has left him in the bottom quartile. As the title to this email suggests though, I believe its a blip and if anything his fund offers more value now.
Whether its football management, running the 100 metres or looking after clients monies, some people are just better at doing this than others......so let them....
"Price is what you pay, value is what you get" (Warren Buffet)
November has passed and 2017 is rapidly drawing to a close. The bulls still appear to be rampaging in the US, where we have a confident economy and we should all be wealthier than we were this time last year given the market increases..... Regular readers know my focus on global players and again these have led the way in November.
That said there was also some pullback in Europe, UK and China.....the raw data being
Dow Jones +3.8% +22.8%
Nasdaq +2.2% +27.7%
FTSE -2.2% +2.6%
Nikkei +1.4% +18.9%
SSE -2.3% +6.9%
Dax -1.5% +13.7%
On currencies, the US Dollar continued to give back (except against the Aussie dollar) and I still see it as slightly overvalued in general. GBP is still undervalued, perhaps EUR & JPY around where it should be.....gains / losses are:
GBP -0.5% -9.6%
EUR -2.5% -13.4%
JPY -1.8% -4.6%
AUD +1.4% -4.8%
CNY -0.3% -4.7%
Due to compounding which I have spoken of many times, it was announced earlier in the month that the wealthiest 1% of people in the world now own more than half of the world's wealth according to a Credit Suisse report.
Much is made of the wealth gap that exists in the media and how the gap is widening often insinuating the rich are getting richer and the poor poorer. However as there are growing numbers of middle class / consumers in developing countries, perhaps some of the poor are actually getting richer also.
Luxury goods is a sector of the market that I have always followed and believe will continue to grow. The pure spending power of the wealthy drives this growth. A couple of the big players / stocks I like in this sector, Cie de Richemont & LVMH are up 30% & 44% respectively. More people with more money may be spending but its not just the wealthy consumer who is contributing to the current economy.
Diageo and Unilever, two stocks that everyone in the world should own, up 31% and 37% . These numbers far outperform the market results as you can see. I know I may sound a but repetitive but these global players in the consumer driven industry will be a place your money will grow. More people will buy Magnum ice creams and Johnnie Walker whisky tomorrow than they dd today, why? Because they can
The compounding effect on the wealth of the mega rich or 1%ers has created some staggering statistics. This has nothing to do with inequalities / injustices etc, its just science. As Albert Einstein said of compound interest it is the eighth wonder of the world.
The combined wealth of the top ten richest people in the world added together would place them 21st in a list of countries GDP, sandwiched between Saudi Arabia and Argentina.
Its this sort of incredible wealth which allows someone to pay US$450m for a painting, emphasising that something is worth what someone is willing to pay for it. The auction house, Christies that night made a cool US$50 million, not bad for a night's work for the owner Francois Pinault.
Then again for those of you old enough to remember when bank's paid interest on monies deposited with them, 5% was achievable.....Monsieur Pinault's US$25 billion fortune would have earned that US$50m in just two weeks.....
."It has become appallingly obvious that our technology has exceeded our humanity" (Albert EinsteinThe first month of the most profitable quarter turned out to be the most volatile, but at the month end everyone should have been richer with all major markets finishing higher.
Dow Jones +4.3% +18.3%
Nasdaq +3.6% +25.0%
FTSE +1.6% +4.9%
Nikkei +10.1% +17.2%
Dax +3.1% +15.2%
SSE +1.4% +9.5%
And with currencies as anticipated we saw the USD slowly clawing back some of those losses from earlier in the year...
GBP +0.8% -7.6%
EUR +1.4% -10.7%
JPY +1.1% +2.6%
CNY -0.1% -4.4%
AUD +2.2% -6.3%
You can see from these stats that the leading market or where you would have had the best returns was the Nasdaq. Being the market where the tech companies trade, this is no surprise when you look at the staggering numbers and facts around the giants of Industry in this sector, Google, Apple, Facebook, Amazon and Microsoft in particular. Buying theses five companies on 1 January would have given you returns of 32%, 46%, 57%, 47% and 32% respectively and there's still some gains to be had in 2017 in my opinion.
Amazon's share price went up over 13% in one day last week, taking its price to over US$1,000 a share and making Jeff Bezos, the company founder the world's wealthiest person, leapfrogging Bill Gates. With fellow tech pioneer Mark Zukerberg at number five, this also illustrates the power of the industry with three of the world's top five richest coming from this sector.
Ten years ago had you put US$10k into each of the above (except Facebook which wasn't public yet), you would have reaped US$270k for your US$40k investment and that was also in a period when the stock markets suffered their biggest crash since 1929. And this growth is here to stay as man's ability to innovate continues.
The spectrum of technology is wide but one area which is of particular interest is Artificial Intelligence . I am sure many of you have seen this (probably through Facebook, or Googled it on your Microsoft windows PC or Apple Iphone ordered from Amazon......). I have to confess to not realising just how far companies like Hanson in the Robotics industry had come. I'm not sure what to make of Sophia.....here's the link for those that have not seen it
The Giants of this industry I have mentioned above will all have their stakes in all aspects of tech as it continues to develop and dominate our lives. And when I say Giants, they truly are that. The combined value of Apple and Google now sits at over US$1.5 Trillion. To put this into perspective all the talk of late has been of Bitcoin. I am undecided as to whether buying Bitcoin is a sound long term investment. I can see the fun and gains (or heartache and losses) that can be had trading it and whilst I think Cryptocurrencies in general will play a part in our Financial system, that part for me is a "bit" part. To put it into perspective the total value of all Cryptocurrencies in existence is approximately US$100 billion. So the aforementioned two companies are fifteen times bigger. Thats two companies (admit ably large ones) out of a total of 2,800 companies on the New York Stock Exchange, this exchange being one of hundreds in the world. When you also add cash into the equation, banks etc the relative size of Bitcoin is so small that it is simply not on my radar.....but good luck if its on yours
"Compound Interest is the eighth wonder of the world, he who understands it earns it, he who doesn't pays it" (Albert Einstein)
The third quarter has now been and gone. Quarter four is historically the most fruitful for investors. We often see larger volumes being traded and whenever the S&P 500 has been up in August and September, 81% of the time the fourth quarter has followed suit
So should the trend be your friend?
Lets look at the data for September and the year so far:
Dow Jones +0.5% +13.4%
Nasdaq +1.8% +20.7%
FTSE +0.5% +1.3%
Dax +7.4% +11.7%
Nikkei +5.1% +6.5%
SSE -0.5% +7.9%
So with the exception of a small pull back in China, a positive month all round in what is often a challenging one.
In fact positive markets have been the theme all year and I see no reason why it will not continue. The old adage "sell in May and go away and don't return until St Leger's day" (16 September) would not have done you any favours this year with the World MSCI moving up 7% during that time.
On the currencies, as expected we saw the US Dollar start to claw its way back except against the British pound which had a nice little surge this month....so the USD performance...
GBP -3.7% -8.5%
EUR +1.3% -12.2%
JPY +2.4% +1.6%
CNY +0.6% -4.6%
AUD +1.7% -8.7%
I would expect these trends to continue with a strengthening USD and GBP and perhaps the Euro coming off a little more.
Most people understand that when it comes to building up your wealth and ensuring that you are comfortable having some diversification is key. The most common objective I hear when trying to gain new clients is "I invest in property"
No one is denying that property investing is a very sound way to grow your wealth, in fact as part of your overall portfolio you should definitely own some. There is a comfort in having something tangible but investing in property and investing in the stock market are different but both vital to having a balanced portfolio of assets.
Property is not liquid like shares, it is a much longer term commitment and often requires a lot more of your own time and energy to make it work.
And what about the returns? The average house price in the UK ten years ago was GBP188,691 according to the Office For National Statistics. Today it is GBP223.800, around a 19% gain. UK property generally yields you around a 4% return if you are renting it out so from a pure investment play we could so call the overall return around 60%.
Compare this with one of my favourite funds, Lindesll Train which has returned its investors 403% in the same period. One of the main factors to this growth is the compound effect and reinvesting of dividends.
Property is less volatile and I understand the psychological comfort in owning something tangible. Successful property investors will also point to the fact they have returned much better than 6% per annum, one area stocks and property are similar is selecting the right areas to invest in.
Regardless of its virtues though, owning only property is the proverbial eggs in one basket.
Diversification is important but as the great Warren Buffet says, it is "protection against ignorance",.
I rarely buy shares in property owning companies, suggesting physical property instead as a way of diversifying.
It is a difficult balance to strike between having enough variety of asset classes to spread your risk and too many which impedes your growth. We're here to help with that.....
"Let our advance worrying become advance thinking and planning" (Winston Churchill)
Due to holiday season, share trading during August are almost always at their lowest volumes. We now head into the final third of the year when volume increases again. The latter parts of the year normally produce the biggest gains, especially Q4, so lets see what happens. The rather benign trading volumes were reflected in the August performances...that said, predominantly positive month again with the US / Global players you know I like to focus on coming out on top.....the raw data:
Dow Jones +0.3% +11.1%
Nasdaq +1.3% +19.4%
FTSE +0.8% +4.0%
DAX -0.5% +5.0%
Nikkei -1.4% +3.1%
SSE +2.5% +8.7%
And on the currencies, we saw the Euro breach the 1.20 mark albeit briefly. I would perhaps suggest the US dollar's decline this year is coming to an end and especially if you have Euros, purchasing some good old greenbacks would be a wise move
British pound still has to be cheap for the longer term, as long as you can close your eyes and not worry about the volatility which will be caused by the ongoing negotiations surrounding Brexit..so the US dollar's performance against other currencies:
GBP +1.9% -4.8%
EUR -0.7% -13.2%
JPY -0.2% -0.5%
CNY -1.9% -5.0%
AUD +0.2% -10.2%
North Korea has been in the press a lot, with clients often seeing this as a worrying situation for their portfolios. There are questions as to whether to buy "safe havens" such as gold. Those of you who know me will know the answer to that question, those who don't it's No.
Whilst we need to be conscious of not belittling the potential threat, this posturing from this Pariah State is nothing new, with both Un's father and grandfather making threats which have largely come to nothing. Of course we want to see conflict avoided but when we look back at other far more serious geopolitical events, it hasn't been necessarily been doom and gloom for your investments.
On 1 September 1939, Hitler invaded Poland, the start of World War 2. The Dow Jones' first day of trading after (5 September) saw an increase of 10% .
When the Japanese bombed Pearl Harbour, the markets fell just 2.9% and these losses were recuperated within a month. In fact during World War 2, a Dow tracker would have made you a 50% return.
In 1962, there was the Cuban Missile crisis. Many believe to be the closest threat we have had of nuclear war, certainly more so than Un's current threat. The Dow Jones fell 1.2% during the 10 day crisis from 16 October - 28 October, for the year there were gains of 10%
Even after 9/11 in 2001, whilst the country was in a recession, the 15% of losses suffered once trading resumed through panic selling where all made back within two months.
No one can predict what will happen next when it comes to these scenarios. Short term volatility can exist but buying good companies with good products in well managed funds is the key to obtaining the long term capital growth. Running off to a so called safe haven every time a worrying situation occurs is not the answer, Gold would have lost you 22.2% had you been invested there for the last five years. Compare that to two of my favourite managers, Terry Smith and Nick Train who woudl have made you a handsome 171% and 156% respectively.
Whatever happens in North Korea, Syria, Libya isn't going to stop us showering using Dove Shampoo, washing our clothes with Persil washing powder and enjoying the odd Magnum ice cream (all Unilever brands and Nick Train's largest holding)
Old cliche I know but "Life does go on".........
"A communist is like a crocodile: When it opens it's mouth you cannot tell whether its trying to smile or preparing to eat you up" (Winston Churchill)
As we re now well on our way into the second half of the year and holiday time in much of Europe, the markets continue to chug along quite nicely. Some pull backs in Japan and Germany but still positive year to date and you'll be hard pressed to find a better return on your cash for relatively low risk than established equity markets.
So the raw data ......
Dow J +2.5% +10.8%
Nasdaq +3.4% +18.0%
FTSE +0.8% +3.2%
Dax -1.7% +5.6%
Nikkei -0.5% +4.2%
SSE +2.5% +5.5%
The currency trends continued, with the USD generally losing ground against other established currencies. GBP still struggling a little with volatility caused by politics. I spoke in my June blog of increased confidence in the Euro which has proven to have been well judged, now getting US$1.18 for one against US$1.12 a couple of months back.
GBP +0.3% -6.3%
EUR -2.9% -11.7%
JPY -1.6% -5.8%
CNY -0.6% -3.1%
AUD -3.9% -11.0%
Having used one of Winston Churchill's quotes here about communism , another of the great man's comments which although was directed at Russia, could also be used about China. "A riddle, wrapped in a mystery inside an enigma"
This is one reason why the Chinese market is one I have stayed away from. Uncertainty about the credibility of the statistics around growth, the MSCI Emerging Market Index only allowed Chinese stocks to be included a few weeks ago, along with the State's ability to interfere with the stock market make it a difficult place to understand . As you know I buy things I understand.
China is clearly a growth story and its size cannot be ignored. If you were asked what the fifth largest city in the world is, few would say Tianjin, a place where whilst I have heard of it I know very little about.
Three of the world's top five cities are in China and it now has five mega cities, (cities with a population of more than 10 million) It also has 102 cities with a population of more than 1 million people, to give you a comparison both Europe and the United States combined have 44.
Urbanisation is happening at the startling rate of 65% and by 2030 there will be more than 1 billion city dwellers in China alone.
And with these trends, where does the growth really lie, in the Chinese market or the global players who will fuel these urban Chinese, my opinion is the latter.
I have spoken before about the rise of fast food companies in India. To give you a comparison China already has over 2,200 McDonalds and 4,400 KFC compared to India's 250 and 372 respectively. A 65% increase in urban dwellers means a 65% more people in these cities to feed, someone has to do it and why not the Colonel and Ronald...
Apple Pay has just been launched in China where last year US$5.5 trillion was spent on mobile payments, it doesn't take a huge chunk of that kind of money to increase the bottom line even with a balance sheet as giant as Apple has.
Companies grow by the consumer buying and using their products, core stocks mentioned above will continue to benefit from these Chinese consumers and it certainly isn't slowing down any time soon....
There cannot be a crisis next week, my schedule is already full (Henry Kissinger)
So it's half time in 2017 as the month of June passes us by and we head into the second half. Although we saw a little pullback in a couple of the major indices, most notably the FTSE, 2017 remains very positive and hopefully your portfolios are reflecting this. The strengthening of Sterling is directly related to the FTSE decline. Its now been over a year since Brexit which caused the value of the Pound to fall so dramatically. During that period the FTSE in USD terms has fallen by 2.5%, yet the market is up 15%, a difference of 17.5%. This reflects the impact of the foreign revenue streams on the big player listed in the UK.
The rest of the stats look like this....
Dow J +1.6% +8.0%
Nasdaq -0.9% +14.1%
FTSE -2.8% +2.4%
Dax -2.3% +7.4%
Nikkei +2.0% +4.8%
SSE +2.4% +2.9%
And on the foreign exchange, the USD continued its steady decline against most currencies...
GBP -2.3% -6.7%
EUR -1.6% -8.6%
JPY +1.4% -4.1%
CNY -0.5% -2.5%
AUD -3.3% -6.8%
I continue to remain positive and bullish (cynics may argue thats my job..) , but as always you are going to have people with differing opinions. What scares clients most is a "market crash"...for obvious reasons
I am always being quizzed about when i think the next crash is happening, often people citing cyclical movements with the thinking behind being we are due one given we have had over eight years of growth.
The Financial crisis of September 2008, with the markets bottoming out in March 2009 is of course what is fresh in most people's mind. Other crisis' such as the dot com bubble of March 2000, the Asian currency crisis (which occurred exactly 20 years ago today) and for some of our more mature investors, Black Monday in October 1987 are also still discussed.
Investing in the stock market is about the long game, lets look at ten years. Despite the dreadful losses that happened in the 2007 / 2008 crisis, if you had held your money in a Dow Jones tracker, you would have still averaged 5.9% per annum. This is a purely passive play and also meant you hit the absolute bottom when the market did. In reality as long as your assets were being properly managed you should be looking at an extra 3% on dividends (whether reinvested or not ) and at least 2% saving in well managed sell offs. Therefore a 10% annual return in the last decade was easily in reach, despite the biggest market falls since the Great depression..
Owning a DJ tracker from March 1987 to August 1997 which would have encompassed both Black Monday and the Asian crisis, would have seen your money grow by 258%....again get this managed and anything less than 30% per annum would not have been acceptable (granted there were other factors such as high interest rates and inflation during this time unlike where we are today)
So whilst nobody likes to see the value of their hard earned cash ever diminish, where else can you seek ou capital growth such as above? And despite all that I do not believe a crash is happening.
We live in a very different world now even from 2007/2008. A much more globalised world where people living in less developed countries are more of a factor in our consumer driven world.
After all it is the consumer that drives company's growth, more consumers use a product, the company that sells that product grows...simple. This is illustrated in technology, a sector which is a million miles away from the one which collapsed in 2000. In 2000 everything was speculation about the potential for growth, now the growth in these tech giants is obvious to see...
Amazon now collects 60c in every dollar of online shopping, Apple has more cash than the United Kingdom as a whole (Over US$250 billion) and in the last 12 months Facebook has gained 322 million users. That is the population of Russia, Germany, France, Holland and Belgium combined....clearly this illustrates that these consumers are therefore coming from more developing markets.
As more countries have an impact on the world economy as a whole, previous crisis which have been triggered in the US are less likely to impact globally. This also proves that having the correct diversification is key to owning a successful portfolio...