Good day to everyone. It sure feels like time is flying with December already upon us and looking at the economic data it also appears as if some Christmas shopping has already started! So without further delay let’s jump right into it.
Last week we saw a slow upward trend out of most markets with the S&P ending the week just over 1% up and the Dow and FTSE 100 close behind also in positive territories. Even with the concerns around the US Fiscal Cliff most investors must see this the same way we do, and that is the fiscal cliff will be a minor event. This is not to say that a resolution won’t be found but it’s more a matter of how long this will take and what they decide to do to reduce the impact of this.
For anyone who has missed the stories about the US Fiscal Cliff, here’s the short version of what’s going on. The US will
Tax Increase
be implementing both spending cuts and tax increases and these are set to take place in January which, in effect, should add around USD 600 Billion into the government budget. This makes sense given the US government needs to find a way to decrease their budget deficit and introducing higher taxes and cutting spending should be a prudent step, right? Yes… But will this happen? Perhaps, but it may not be as clear cut, or straight forward as this. Although the tax increases seem to be the main target for discussion, I’m not buying the news stories on this, and I feel it will be the spending cuts that hold a solution up and potentially force a delay in decisions. Moreover, governments, more than ever, are having trouble dealing with spending cuts and we only need to turn to Europe to see how difficult that can be, and has been.
What the US has been good at though, especially in the last several years, is creative policy intervention and I see this being their go to move by possibly implementing something to push this problem down the road so that in the event this is not resolved in time they have a way to delay this. Of course this is just an opinion, and even though global markets seem to indicate they are on the same belief as ourselves, it will be important to focus on a well balanced portfolio to better ride out this volatility.
Invest in Africa
Emerging Markets and commodities continue to show good value as they have been quietly hanging around lower levels on the year. While on the fixed interest side High Yield Bonds and Emerging Market Bonds continue their strong performance and we would expect this to continue for the next several months. One up and coming region worth looking at is Africa. With an incredible set of numbers behind it in terms of geographical size and population, Africa has experienced around 15% growth on the year and with 15 of the top 30 fastest growing countries by GDP located in Africa, we certainly see opportunity and potential there from an investment perspective. We’d like to continue to iterate our opinion that it would be prudent to keep a balanced portfolio as we head into the end of this calendar year, ensuring a broad spectrum of holdings is included as a part of your overall portfolio to help protect against the volatility that we’ll continue to see.
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.
Wishing you all a great week!
Co-Head of Portfolio Management,
Darren Cox
Austen Morris Associates Wealth Management & Investment Team
www.austenmorris.com
