Donald Trump went on the offensive during the most recent round of trade talks with China. As is becoming the norm, he fired off a number of tweets attacking their stance and announcing further tariffs on goods purchased from China. This on-again, off-again relationship has taken more turns than a bad US rom-com and put America’s potential trade war with China firmly back on. President Trump’s tweets spooked the market at the beginning of May but we saw signs of a recovery as he softened his stance over the next couple of weeks.
What's happening in China?
Trade talks between the US and China continue, however there hasn’t been as much progress as we might have hoped. Chinese markets have stalled of late. Plus, the recent news of phone provider Huawei’s obligation to share data gathered worldwide with the Chinese Government is raising red flags with countries such as the UK and US, which could possibly affect trade talks further.
May, May, go away
Theresa May has announced her resignation as the leader of the Conservative party, however she will continue as Prime Minister until a replacement is chosen. We would expect a new Prime Minister to be in place by mid-July and, at the time of writing, the current favourites for the post are Boris Johnson and Dominic Raab. Both candidates have intimated the UK will leave the EU without a deal at the end of October if nothing can be agreed.
Deal or No Deal?
Before her resignation, Theresa May attempted to form a consensus with the Labour party on a way forward on Brexit talks. Both sides blamed the ‘weakness and instability’ of the other party as talks broke down. This, along with May’s resignation, caused the value of the pound to fall as the likelihood of leaving the EU with no-deal increased. A number of candidates with differing views on Brexit have put themselves forward to be the next leader. However, regardless of who the new Prime Minister is, we expect UK markets to remain uncertain until any agreement with the EU is reached.
The market is predicting a low level of growth, but we do believe there are some reasons for positivity. We began the year supportive of stocks; however we are becoming more cautious as the year progresses. The main risks still come from Brexit uncertainty in the UK, the potential of trade talks between the US and China collapsing completely, in addition to the US central bank raising interest rates if markets grow too quickly.
Investing with us
Our key goal is to deliver good outcomes for our customers. We do this by following our core beliefs:
- Pensions are long term investments
While it can be hard to watch large market drops, especially if the value of your savings is falling, it’s important to remember that investing for retirement is a long term game. It’s very normal for an economy to go through phases of expansion and contraction.
In fact, over the long run there is a recession every five to ten years. We think of these cycles in terms of waves of growth and inflation, and consider which investments do best when growth is strong or weak, and when inflation is falling or rising. Our investment experts analyse and understand where we are in that cycle and which types of investments we should be investing in within the portfolio mix. This is called the short term view and we do this on a day to day basis so that we can try to maximise returns and avoid some of the losses.
Falling markets can be buying opportunities, particularly when you are planning to invest for a long time period. We see the current market falls as potential buying opportunities for equities. The multi asset portfolios are currently holding slightly more equities than average, having bought on the recent dips. We’re also holding more corporate and high yield bonds.
- Greater diversification
We believe that investing in a wide range of asset classes will result in more consistent performance across a wide range of economic conditions. This spread of different investments helps to reduce the risk of having all your eggs in one basket.
The Governed Portfolios are designed for investors who are saving into a pension and aim to maximise returns above inflation within a defined risk framework and term to retirement.
The Governed Retirement Income Portfolios (GRIPs) are designed for customers who are taking money out of their pension on a regular basis and aim to maximise returns above inflation to support sustainable, regular income withdrawals for a range of risk profiles. The portfolios hold a wide range of investments, including company shares, property, bonds, commodities and cash in order to help them meet their objectives.
We believe that all investment options should be monitored on a regular basis, and this is a core part of what we do for our customers. All the portfolios are monitored on an ongoing basis by our experts to ensure they deliver in line with their objectives. You can keep an eye on how your investments are performing using our online service.
If you are in any doubt about the suitability of any particular type of investment, you should seek professional financial advice. Advisers may charge for providing such advice and should confirm any costs beforehand.
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Q2 Investment outlook
My name is Trevor Greetham, I'm head of Multi-Asset at Royal London.
The financial markets have been very volatile over the last year or so. We saws a bit of a roller coaster with share prices dropping last spring, rising over the summer and dropping very sharply going into Christmas. This year again share prices have gone up quite strongly.
The reason the financial markets can’t really make their minds up is it’s a mixed picture. We’re quite late in the US economic cycle in particular interest rates have been going up for a while and we see some good news and some bad news, We expect this two way pull to continue for some time, at the moment we are mildly positive on company shares because we’re seeing signs of additional stimulus in China and the fact that interest rates have at least stopped going up in America coming through. But we are keeping our eye on 2020 because the housing market in America has started to slow down in response to about 2 years of interest rate rises and if that carries on it could threaten growth next year.
Closer to home of course Brexit remains an issue and it could end in many different ways. On the one hand we could leave the European Union without a deal in which case I would expect the pound to drop quite a bit further than it has already. We could cancel Brexit altogether in which case the pound would go up and this has an impact on member’s portfolios because you have some of your money invested overseas and therefore the exchange rate matters. The good news is that all the portfolios are invested across a range of different asset classes likely to do well in different circumstances and that diversification is spreading the investments across lots of different asset classes and should result in a degree of stability.
So summing up there lots of risks out there on balance. We are moderately positive at the moment. We think global growth will surprise a little bit positively this year and next year we are a bit more concerned so we’re keeping a very close eye on things. We’ll keep you updated on the financial markets and the way we are positioning portfolios as the year progresses
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