Greetings everyone, to all of our readers domestic and abroad, we wish you and yours a happy Chinese New Year and all the very best in this year of the Snake! I was in Shanghai last week for the CNY break and was able to enjoy the fantastic firework displays and celebrations, some of which were spectacular! This will be the first full year for the new China leadership so we’ll see how they direct the world’s second largest economy. In the mean time let’s take a look at the global markets and see if we can’t get a better idea about some upcoming issues.
Looking back to the start of January, global markets have been on an upward trend and last week was no different as global indices continued their slow and steady rise with average gains reaching just over 1%. There was plenty of economic data last week as we all but wrap up earnings seasons, and only a few more companies are still to release their earnings reports… Don’t have the interest or time time to digest all those reports and numbers? No problem, here’s the quick version. For the most part, Q4 numbers came in relatively strong with about 70% of companies reporting above expectations. Do remember though that market expectations need to be taken in context and for anyone who missed coverage of this topic, it’s in our Money Mattersfrom the last week of January.
Even the G20 meeting last week had nothing much to discuss in regards to economics besides avoiding a currency war. I find this somewhat amusing as every government is guilty of manipulating their currency in some way and this is a classic case of finger pointing among politicians. What is a currency war you ask? Certainly it’s more complex than this, but here’s the short version – Currency wars are when governments intervene to change the value of their currency (usually down) whether it be through interest rate adjustments, quantitative easing measures (as recently seen in the USA and Japan), or more extreme measures such as re-pegging their currency to another currency. In reality, a currency’s value is best determined by the open market and although some governments can control it better than others, the markets will almost always prevail and sometimes force governments into a corner. For example, export countries such as China and Germany would want the RMB and Euro to be at lower values so that their exports will be cheaper to other countries. However, we also have the US who wants a weaker dollar so they can pay off their debt more easily. All in all it’s a fine line to walk as sometimes government intervention will cause strong movements that can have a bigger impact than desired, and is thus best left to the markets, although that won’t stop governments from manipulating their currencies nonetheless!
So looking ahead with earnings reports wrapping up, we can expect economic data over the coming weeks to be less abundant Earnings Reportssowe’ll have to see if headline news starts to shift its focus back towards Europe as well as the upcoming US budget ceiling which is, once again, looming in the next few months. We’ve said many times in the past few months. We’ve said many times in the past few months that as long as Europe and the US stay quiet in the news, the focus would likely stay on economic data, but we do know this issue will have to be dealt with soon. And to learn from history lessons past, when this same thing occurred last August, although it will get dealt with, either with a delay/short term resolution/or other temporary measure, until it does investors with a balanced portfolio should feel much more comfortable through some of the volatility we might see. Now I could be wrong about this and we may see fundamentals continue to be the media focus, but regardless, we still recommend holding a mixed balance of equities, emerging and high yield bonds, and commodities in order to be in the ideal position for market conditions at this time as an investor.
For Austen Morris Associates’ investors – remember to hold a balanced portfolio and talk with your advisor about any repositioning to take advantage of markets at this time. For more updates on the world financial news please visit our Weekly Global Economic Outlook.
Co-Head of Portfolio Management,
Darren Cox
Austen Morris Associates Wealth Management & Investment Team
www.austenmorris.com
