News / Views

Investment Notes

Follow our regular updates to stay up-to-date with current financial planning and investment issues. We regularly publish press clippings, articles and thinkpieces that we think might be of interest to our clients.

Both we and financial markets were surprised by the result of yesterday’s referendum. “Remain” had regained a lead in the opinion polls as the vote approached, so stock markets and sterling had been rising on the assumption the UK would remain in the EU.

It has been our long-standing expectation that the UK will vote to stay in the EU at the referendum on Thursday 23 June 2016. This judgement has been based on the belief that the British electorate is internationalist in nature and would respond to the exhortations of political leaders to continue with EU membership.

In late January, we published our market outlook for 2016, in which we said we expected stock markets to make progress after a weak start to the year. Our view was that the recent unsettling news from China shouldn’t derail economic growth in the developed world and markets would recover.

2016 has started with a re-run of the challenges from the summer of 2015, as the fall in Chinese share prices and the yuan have undermined confidence in financial markets. As before, clumsy actions by the authorities appear to have sparked the situation.

In July 2015, George Osborne presented his post-election Budget against a background of an economy that had grown at 3.0% in 2014 and was enjoying zero inflation. The revenue-raising measures he announced then allowed the Office for Budget Responsibility (OBR) to reduce its projection for net government borrowing in 2015/16 to £74.1bn, a 20.9% drop from the previous year.

Company shares have declined sharply in August, as developments in China sparked concerns for the global economy.

On 8 July 2015, George Osborne, the Chancellor of the Exchequer, delivered the first all‐Conservative Budget since 1996 as a “Budget for working people”. The first Budget after a general election is traditionally the time for introducing unpopular measures. The Chancellor is not constrained by a coalition partner and has nearly five years until the next election.

Both we and markets were surprised by the turn of events concerning Greece over the weekend. Our central assumption had been that an agreement would be cobbled together as deadlines began to bite, and we didn’t expect the Greek government to call a referendum; the subsequent sharp fall in European stock markets shows that other investors had a similar view. The question now is whether the reaction in financial markets is simply the volatility that arises when unexpected events occur, or whether there is a risk of a permanent loss of capital. We are taking an optimistic stance, expecting company share prices to recover; we don’t believe that events in Greece will derail the economic recovery in Europe and the West, for the reasons set out in this note. Meanwhile, we are likely to see more tragic scenes from Athens on the television news, as the crisis impacts everyday life.

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