An investors eye view of Budget 2018
In the wake of last Monday’s Budget, Jonathan Cunningham, partner at Cunningham Coates, Belfast’s longest standing investment management firm which is this week marking its 175th anniversary, shares his thoughts on the Budget and the implications for investors.
“Understandably all eyes were on last week’s Budget with Chancellor Philip Hammond promising to end austerity and pledging a raft of measures — ranging from the introduction of a ‘digital services tax’, aimed at technology giants, to income tax cuts and extra spending on the NHS. As Budgets go, this will likely be broadly well received, with the Office for Budget Responsibility stating that Mr Hammond’s spending promises represent the biggest Budget giveaway since the independent fiscal watchdog was set up in 2010.
“Perhaps of more interest to those within the investment world was the immediate effect that the announcements might have on both the equity and gilt markets, and also on sterling.
“While the FTSE 100 ended Monday up 86 points at 7,026, it could be pointed out that it was actually further ahead — up 113 — when Mr Hammond stood up to speak. In fact, it might be suggested that the day’s rise was little to do with the Budget at all and much more a modest rebound caused by increasing investor appetite on the back of steady falls since May’s highs of 7,877.
“From our perspective, it is important to view these developments not only through a longer term lens, but also in the broader context of a global investment portfolio, diversified by geography as well as asset class.
“Obviously this was the last Budget before the UK’S scheduled exit from the EU. To UK investors, Brexit, which is now less than five months away, might loom large, but the issue is not foremost on the minds of investors on a worldwide scale. Trump’s trade wars with China, Italy bringing down the Euro and US interest rates having much more of a bearing on global markets, and thereby investment portfolios, over recent months.
“While events such as these create short term volatility within investment markets, of much greater importance is the ability to identify long-term trends and position portfolios accordingly. It is often said that ‘time in the market’ is much more significant than ‘timing the market’ — something which has proven true across the numerous investment cycles we have seen throughout our 175 years in business.
“Indeed, this autumn marks the ten year anniversary of the global financial crisis. The decade that has followed this has not been without concern, most notably from the Eurozone debt crisis in 2011, the QE taper tantrum in 2013 and the collapsing oil price in 2015. However, all things considered, this period of ultra-low interest rates and unconventional monetary policy, coupled with gently improving economic growth, has been positive for investors. The old adage that stock markets climb a ‘wall of worry’ is as relevant today as it ever was.
“The health of the global econ- omy is strongly influenced by the US, where growth recently exceeded 4% for the first time since 2014*. US unemployment is near historic lows, with the economy adding approximately 200,000 jobs per month. Confidence among consumers and businesses has been supported by the recent tax cuts and deregulation — boding well for continued wealth creation.
“As investment managers, we have followed the same principles for the past 175 years. We operate a bespoke approach to supporting our clients and are always available, always engaged and always aim to keep abreast of market conditions. We understand risk, forecast it, and aim to protect our clients from it by building well-diversified, bespoke investment portfolios... whatever the market brings.”