March Investment Outlook: Looking at the Bigger Picture
Richard Clark and Simon Patterson, Private Bankers at Barclays Wealth, Newcastle.
Another late-night summit, another inconclusive result… We still don’t know exactly which investors will bear the costs of Greece’s debt forgiveness, or exactly how much they will pay. Anyone with corporate experience can’t help but feel uneasy at the news that the troika are establishing a permanent mission in Athens to micro manage the austerity and reform process: local demoralisation and backlash looms even larger than it did.
Elsewhere, the sad denouement in Syria - and the potential for even more traumatic developments elsewhere in the region - is keeping geopolitical risk on the front pages. In sterling and euro terms, crude oil prices have just hit new nominal records. Meanwhile, with developed stock prices up $10 in
2012 already, and by $20 from their October lows, there is plenty of profit on the table to be taken.
You don’t have to look far to find reasons for a setback in developed stocks and in risk assets generally.
The key investment question is: should we try ourselves to micro manage portfolios with these risks in mind or focus instead on a bigger picture?
Even professional investors have found it difficult to second-guess the twists and turns of capital markets these last few years, and as our behavioural finance team remind us, for private investors in particular, the danger of selling low and buying high looms very large when markets are volatile.
We still believe we should avoid fine tuning, and focus instead on the longer-term view: as we see it, the rally is neither surprising nor without foundation. The ultimate fate of Greece may still hang in the balance, but the ECB has been decisive in supporting the banking system, and may have largely
insulated it against even a formal default (not that we yet expect one). Economic data have been less fragile than feared on both sides of the Atlantic – witness again the latest IFO (Germany) and CBI (UK) surveys, and the ongoing descent in US weekly unemployment claims.
If anything, the US recovery may be taking on a more durable tenor as the housing market at last finds its feet. There is even a silver investment lining to higher oil prices, since they tend to boost corporate profits, at least until they begin to hit consumer spending, of which there are few signs yet
(there are more big producers of oil in the major stock markets than there are users of it).
And despite the rally, developed equities - and to a lesser extent, high yield credit – still look inexpensive to us.
We face a busy month, with important US economic data and the second LTRO from the ECB in this week alone. But we continue to think that setbacks in risk assets should be seen as an opportunity to add to long-term positions – not retreat from them.
As always, we do emphasise that investing in shares is not for everyone. Their value can fall and you can get back less than you invest – if you are unsure, you should seek independent advice.
This was posted in Bdaily's Members' News section by Richard Clark .
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