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The July Outlook: Brexit Turmoil, Positive News For The Eurozone And Anti-Trade Rhetoric

The July Outlook: Brexit Turmoil, Positive News For The Eurozone And Anti-Trade Rhetoric

Alex Neilson, investment manager at Investec Click & Invest comments:

Whilst the environment in July continues to be uncertain from an asset allocation perspective we have made limited changes to our portfolios.

As Brexit continues to dominate headlines, we maintain our current positioning and – bar any changes to the status-quo – currently see no immediate impact from it. If and when a deal (or no deal) scenario is played out we will allocate for it accordingly. A no deal scenario is likely to be negative for most UK domestic companies whilst presenting an opportunity for large multinationals as GBP weakens.

“Looking to Europe, recent news from the European Central Bank shows that the economy is in good health. This reaffirms our position to stay invested primarily in stocks and shares over bonds. In addition to funds that should benefit when the ECB decides that the economy is strong enough to withstand interest rate rises. However, we have seen some euro weakness so far this year, particularly against the dollar which has enjoyed a good run up so far in 2018. From a global perspective, we continue to monitor the anti-trade rhetoric and the impact of trade tariffs from the US and on those regions more reliant on trade, such as most emerging markets.”

What is impacting our investment decisions in July?

  • Positive news from the Eurozone this month as the European Central Bank announced the end of its quantitative easing bond purchases meaning the European economy is in good health.  Although we could see short -term volatility whilst the transition takes place. This news reaffirms the position we have had for a while at Click & Invest in choosing to position ourselves in assets that do well when the economy is recovering, investing in stocks and shares rather than bonds. Typically, we select the stocks that do well when the economy is doing well, rather than companies that do better in more difficult economic times.
  • We have been monitoring the anti-trade rhetoric that has been coming out of the US on an ongoing basis, with a focus on the tariffs that have been imposed from the U.S. and China, which could expand across the globe. We continue to look for signs on whether this potential trade war may be impacting economic growth in certain regions that are particularly exposed to trade. However, one point to consider is that while those tariffs announced are starting to add up, the tariffs actually imposed so far are relatively small.
  • A tumultuous Brexit period this month has impacted the markets slightly over the concern of a potential leadership contest. At Click & Invest we’ve looked beyond the noise and asked ourselves, “has anything fundamentally changed?” For us the answer is no. Currently we don’t think that the events of the last few weeks have fundamentally changed the outlook for our portfolios.

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