Greetings to readers joining us this week – we hope that you had an enjoyable weekend and are settling in to the New Year as we move in to its second week. The overall markets weren’t too exciting last week with most of the major indices trading within a 1% range. The UK FTSE ended the week just slightly above where it started, the US S&P slightly higher ending the week up 0.3%, and the Hong Kong Hang Seng just shy of one percent with a gain of about 0.8% on the week. Despite the small weekly movements, there was plenty of data along with our regular internal Austen Morris Associates Investment Board meeting so let’s jump right in and take a look back at the week that was!
The US announced the appointment of Janet Yellen who will succeed Ben Bernanke on February 1st as the FED Head. Although this isn’t news to us, it does confirm what has been expected over the past few weeks with this change so it will be interesting to see how the easy monetary oriented Yellen deals with the QE3 wind-down that was started last month (but ideally will continue throughout the year). US job numbers posted on Friday were very weak which was attributed to the recent bad weather and festive holidays but markets seemed to shrug off the data with little influence. Previously, US indices have been known to rise on strong job numbers, so given that the markets barely flinched with the low level release (less than half the job growth that was expected!) it seems a bit strange the markets would choose to ignore this job data. This could be an indication of resilience in the markets although how this resilience holds up is yet to be seen given it was only one week of poor data and we still have plenty of weeks (of data) ahead in 2014! This sentiment was shared by our investment board members in last week’s meeting and it was agreed to ride through any of the volatility and stick with the longer term positive trend expected for 2014.
Over in Europe, the ECB decided to hold rates at their current 0.25%. This comes as no surprise, as although inflation concerns are rather low and technically the ECB could cut rates down to 0%, this wouldn’t give them any room to maneuver later on and their decision to hold rates keeps that card up their sleeve for a bit longer. Hopefully they won’t need to cut rates further with the Eurozone slowly growing, but despite this growth, the ECB is fully aware that the Eurozone economy remains fragile at this time.
In Asia, the story continues to swing back and forth and although China’s numbers in December were lower than expected, it hasn’t attributed to any looming trend and we do expect the Asia region to benefit throughout the year and feel that the region remains attractive at its current prices. The overall outlook for emerging markets seems to be better in 2014 but whether they will catch up to the levels of the developed world, still remain to be seen. With this in mind, we should take a look at the VIX index. For our newer readers, the VIX is simply a short term gauge on the outlook of the US S&P and with the current low VIX levels, it seems to indicate that no one is too concerned with the short term issues and supports the longer term trend of this year that equities will continue to be the top performers.
Although it’s still early on in the year, investors will want to hold a diversified mix of both developed and emerging equities. Despite near term indications that point to developed markets leading the way, the attraction for lower cost emerging equities should be part of a balanced portfolio. In addition to equities, investors will want to hold a mixture of bonds and commodities as well, but perhaps at a lower percentage than previously held in the past.
Following our Austen Morris Associates Investment Board meeting, there was a mutual consensus to maintain existing portfolios and investment strategy for the majority of clients who are already fairly heavy weighted within both developed and emerging market equities, hold strong positions in Asia, as well as minor attributions to commodities and bonds. Even though the current trends look to remain in place we know how quickly things can change so be sure to keep an eye on our weekly financial news and updates and speak to your Adviser if you would like to review your current portfolio and investment strategy as we embark on this New Year.
For Austen Morris Associates’ investors – talk with your advisor about any repositioning to take advantage of markets at this time. For more information about Austen Morris Associates please visit our website.
Austen Morris Associates Wealth Management & Investment Team
Darren Cox
Co-Head of Portfolio Management
