Following a dramatic world cup tournament, with many twists and turns along the way, France overcame Croatia in a highly entertaining 4-2 win in the final yesterday. The win is expected to contribute to France’s economic growth this year as households have been spending more and tourism is expected to increase.
Europe as a whole remains an area of interest for client, given the strong momentum in economic growth seen, albeit with a recent slowdown to more normalized levels.
Closer to home, our resident Blues (Conservatives) have had a challenging week with the resignation of David Davis, Brexit secretary, and Boris Johnson, foreign secretary and a concern around further resignations in Theresa May’s cabinet, and indeed a potential challenge on her leadership. Recent calls for a second EU referendum have however been ruled out so far. Market reactions were relatively muted in light of the resignations, as sterling dropped c1% on the news, currently trading at 1.3278 (as at 16th July), whilst the FTSE was focused on ongoing trade negotiations further afield, hovering around 7,600. Touching on the Trade Wars, companies are more concerned about the lack of clarity on the rules of the game rather than necessarily the actual tariff hikes themselves.
In a cabinet reshuffle, Jeremy Hunt, a former Remainer, reborn as a Brexiter, has been elevated to the foreign secretary role, whilst Dominic Raab steps into the role of Brexit secretary, setting up preparations for a ‘no deal’ Brexit – both keen to press on with the tasks at hand. The new Brexit plan outlines :
- A free trade area for goods
- Development of a common rulebook
- Creation of a combined customs union
- The UK to continue to participate in EU agencies for chemicals, aviation, medicines
The UK economy still appears to have life yet, as good weather, the World Cup and the Royal wedding have prompted UK consumers to spend more in June, and accordingly markets are pricing in an 80% probability of a rate hike on August 2nd , as bank of England Governor Mark Carney has become more confident on the UK rebounding from the sluggish start to the year.
Amongst the political and economic volatility, it is important to remain focused on investing in strong companies. Earnings season is underway with banks reporting last week and some high expectations from tech companies this week. It is widely expected that we will see c20% increase in earnings year on year as tax benefits start to take effect. As you poker players will be aware, Blue chips are the highest value disc used in lieu of real cash, whilst White chips denote the lowest; accordingly Blue chip stocks are the shares of established and well recognized companies with a long history of sound financial performance, which typically endure during tough market conditions.
With this in mind, reducing our exposure to market trackers and adding to either quality individual stocks, or active funds like Blackrock Continental European Flexible, managed by Alistair Hibbert can be beneficial. Likewise within UK space, reducing exposure to passives above the psychologically important 7,200 FTSE level can help to mitigate downside volatility; the global economy will likely continue to reward investment portfolios tilted towards stocks.
‘Come rain or Come Shine’ (BBKing Blues legend), Blue chip stocks are well placed to generate incremental returns in an increasingly volatile market.
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