On a recent visit back to the homeland then, I was gratified to have the chance to sit with five of Edinburgh’s finest wealth managers and chew the fat about markets, asset allocation and the financial services industry as a whole.
“What I want to know is how we get ourselves out of this mess, how do we unwind QE,” said one of the attendants of the Portfolio Adviser annual investment roundtable in Edinburgh.
That was just over a month ago, and the sharp market correction witnessed yesterday, after Ben Bernanke decided to make some less than soothing noises over a slowing down in QE, shows just how much of a mess we are in.
Playing dominoes
The correction started overnight Tuesday in Asian markets, with the Nikkei 225 closing down 7.4% having been 10% lower at one stage. Given the run in Japanese equities lately, many had been calling a pullback for a while. Read more about Japan profit-takers here.
To put it in perspective though, this fall only took the index back to levels last seen just ten trading days ago.
European markets followed suit, with the FTSE 100 posting triple-digit losses, closing 2% down at 6,696, but again it only rose above this level five days ago. The German Dax and French Cac 40 both finished 2% lower on the day too.
At time of writing, however, the US markets were holding up quite well. In the words of Alanis Morissette, ‘Isn’t it ironic, don’t you think’. The S&P 500 was down a little over 0.5% and the Dow Jones an even less worrying 0.25%.
Bernanke sneezes and everybody else gets a cold.
Expensive but worth it
Back to our panel of wealth managers in Scotland then: When asked their opinions of various equity markets, the US was still deemed to be the place to be, even if it was also viewed as expensive.
Harry Morgan, CIO at Thomas Miller Investment, said: “When you look at the companies in the US, these guys are category killers, they have won the war and there is going to be a big payback. I think Japan at the margin it is a speculative recovery position and if you are there you might make a fortune. The US, on the other hand, you simply have to be in.”
Quilter’s executive director, Alan Aitchison, agreed US equities had a way to go, and Charlotte Square’s investment manager Kris Barclay, added: “The dynamics of the US show it to be a different beast and it also happens to be the world’s reserve beast. In equity language I think it is definitely a safer risk-adjusted bet than all others.”
Basket case
All of the wealth managers had some exposure to Japanese equities – some had been holding out for two years to gain the ground that has been gained in the past six months – but Japan was still viewed as something of a basket case after 20 years of disappointment.
The fact the Japanese market reacted the most strongly to Bernanke’s statement shows just how vulnerable to turning sentiment it can be, even when just a couple of days earlier its own premier restated his commitment to a quantitative easing programme which in terms of percentage of gross national product is greater than that set out by the US.
So what of Europe?
“People say looking at the technicals it is unbelievably cheap. If you are a long-term investor you should look through the political sentiment, we have not sold any of our European investments at all. It is probably time to buy it now while nobody is looking at it. But who are the great European managers? I can’t actually think of any,” said Morgan.
If you can think of any, do let us know in the comments box below…