Who would have thought that, having fallen off a cliff in January, Chinese equities would be up 24% in sterling terms year-to-date? In fact, sterling investors have seen their investments rise in pretty much every single asset class this year – as at the end of November, only UK REITS were in negative territory, down 11%.
UK mid-caps disappointed with only 1.8% returns, it’s true, but pretty much everything else was at least high single digits to the good, with Brazil turning out to be the pick of the bunch, up a huge 94%. Even bonds defied the odds, as central banks stubbornly refused to raise rates, with UK 5 to 10-year bonds the ‘worst’ of the bunch, up 7.8%, and US high yield doing best, up 24%.
We do, of course, have sterling’s slump to thank for a good chunk of these returns, but hey, we’ll take it. Especially as I don’t expect the same outcome in 2017.
This morning, when I started penning this article, the FTSE hit 7,070 in overnight futures, only to fall 130 points on opening. We have a very big options expiry on Friday, which might drag down the market, but then we might expect the Santa rally to kick in and the Dow Jones to possibly reach 20,000 before the lights go out for Christmas.
Things are getting insanely volatile and much, I suspect, like the president-elect’s policy writer, we simply don’t know what the future holds. This is not the time for unbridled optimism!
Bond world seems to finally be waking up and smelling the coffee. Despite a rise in yields last month, government bonds still look expensive and the trend can only be upwards, surely? Spreads on corporate are still tight and default risk seems likely to rise, making high yield potentially less attractive too. Liquidity risk also remains a concern despite central bank buying and regulatory stress testing.
Western equity markets, as I’ve stated previously, continue upwards, but this could be the last roll of the dice and they are looking on the expensive side.
Property is still attractive as a real asset offering a higher spread against most fixed interest markets but it has been tarnished recently by the ‘gating’ brush – and anyway, it is unlikely to shoot the lights out.
