DECEMBER 2019 MARKET UPDATE

Whichever party one voted for in the General Election, the outcome as far as UK markets were concerned was a business friendly one and the size of the Conservative majority provides certainty that Brexit, in whatever shape or form, will now finally be implemented.

We have stated before that the repeated phrase in the media regarding markets hating uncertainty is somewhat ridiculous, given that the future is always inherently unknowable and therefore uncertain.

However, it is true that at times where the outcomes of a greater number of known issues have yet to be resolved, the future can seem to be even more uncertain than usual. Perhaps we can call this perceived uncertainty and this has surely been the case over recent months with the chaos and confusion resulting from the goings on in Parliament.

The reduction in this perceived uncertainty that the Election result provided has resulted in a boost to the UK stock market and sterling currency. Despite this, as we mentioned a little while ago, the UK economy is currently experiencing a tough time, with growth effectively grinding to a halt due to this prolonged period of indecision. Indeed from what we can see as we enter the fourth quarter it is shaping up to be a particularly challenging one for many companies heavily exposed to the domestic economy.

Nevertheless even if we do tip into recession, i.e. two quarters of negative growth, we believe that this will prove to be short lived. This election result should increase confidence and thus business investment decisions that had previously been on hold. Employment remains at high levels so there is no reason why shoppers will not now also return to drive consumer spending higher.

Markets are forward looking entities and, as we have said before, the present subdued rating of the U.K. stock market, relative to others, is such that for it to perform well merely requires a normalisation of this disparity rather than a reliance on booming economic conditions. As such we remain confident in our overweight allocation to UK equity.

There has also, at the time of writing, been a partial resolution to the US China trade war, with agreements to cancel proposed tariffs, roll back some of those previously imposed and for China to increase its purchase of US goods.

With markets it can sometimes be better to travel than arrive. Judging by the VIX Index, which is one of the measures investors use to gauge risk sentiment, we are close to peak optimism in the US. Usually this is a warning sign that markets have got ahead of themselves in the short term and are due a reaction. This goes to further justify our decision to remain underweight the US equity market.