As Rothschild Wealth Management global investment strategist, Kevin Gardiner pointed out in his latest Markets Perspective piece, while there are a number of big issues still on the horizon (not only Brexit, but also the possibility of higher US interest rates, the looming US election, the reviving refugee crisis and the labour relations impasse in France, among others) global growth still seems to be exceeding stall speed.
And, he said, despite the lacklustre US jobs numbers, fears of a US recession and a hard landing in China seem to have faded further.
“Fears of another 1997-type Asian crisis in particular have subsided: they always looked overstated, and leading indicators suggest that the regional economy may be bottoming. (This does not mean China’s slowdown is complete, simply that its wider impact may not be traumatic.)”
That is not to say, of course, that there is nothing to worry about, or that the risks around Brexit or a Chinese hard landing are not, in fact, real. On the contrary, as we get closer to the actual vote, the reality of the risks are going to become increasingly apparent and volatility is likely to rise.
But, while volatility is going to increase, trying to position oneself ahead of it is exceptionally difficult.
As Rayner explained: “In essence, the EU referendum is a binary, single day risk event.”
It is for this reason that the firm, while it has a view on what the outcome is, is not implementing any specific return-based views.
“We avoid taking active positions on opaque risks, such as political risk, especially when combined with currency risk, which it often is,” he said, adding: “We are managing risk in a slightly different way. For example, we have reduced our currency risk by hedging back more of our overseas exposure into sterling, thereby dampening the effect of the first order effects of increased currency volatility on the portfolio.”
