News / Views

Investment Notes

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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.

Despite the increasing concerns of a Greek default and the additional volatility this has brought to most world markets, we believe that there is more global bloom than gloom; this note explains why current portfolio allocations should be maintained with company shares and commercial property predominating over cash and bonds.

QE moving the Eurozone towards recovery

The ECB announces new policy measures to stimulate the economy

Following the bout of weakness in October, which we commented upon in our note entitled “Keep Calm and Keep Shares”, and the subsequent recovery, company share markets have experienced further volatility, as we expected in the second half of this year (see our 10 July 2014 note entitled “A Quietly Profitable First Half ”).

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