Moving in to the latter part of Q1 now with March upon us, it seems that the holding patterns we talked about two weeks ago continued into last week with most of the major indices staying within a 1% range. The Hong Kong Hang Seng was down just shy of -1%, while the UK FTSE was down -0.3%, and the US S&P up about 0.8%. Despite markets going back and forth, and trading activity in line with volumes so far this year, the markets just couldn’t find a direction they really wanted to push towards. With that said, there was plenty of news happening behind the scenes so let’s take a look at that.
Over here in Asia the main news was the low PMI or manufacturing numbers reported for China which we also touched on in last week’s Money Matters. The PMI came in at 48.5 putting it at the lowest reading in about seven months. For our newer readers, a PMI reading below 50 is considered to be contraction territory, while anything above 50 is considered growth territory. In this instance, most economists have brushed this off rather lightly attributing the weak numbers to the Chinese New Year holidays, so most of our readers won’t be too surprised by this. But our regular readers will also know that this is the third consecutive month that numbers have been dropping, and the second consecutive month it’s been reported below 50. But nonetheless, we also need to account for the trends and indications rather than a spot month! Even though we still remain bullish on China, and believe in its future growth potential, the recent numbers aren’t helping the sector in the short term but we are hopeful they can turn this around before momentum starts to build, as the holiday seasons can’t continue to be used to rationalize this. Also noteworthy at this time is that the CNPC (China’s National People’s Congress) is meeting over the next 10 days so we’ll see if any major economic reforms are announced but wouldn’t expect them to rush into anything, particularly as it’s more long term views that they usually tend to focus on.
Similarly, the US also reported weak numbers and US FED Chairwoman Janet Yellen attributed this to the recent extreme weather conditions across the country which investors seemed rather comfortable with as a response. She also indicated that the FED would continue with its stimulus reduction unless significant changes or disruptions to the economy occurred, and again, most investors were expecting, and accepted this. So, besides reiterating that they have their hands on the controls, they simply appear to be trying not to rock the boat too much.
Despite the very marginal movements of markets over the past few weeks, we have seen some trends and data which was thoroughly discussed at our Austen Morris Associates’ Investment Board meeting at the end of February. Consensus from the meeting and discussions about market conditions, opportunities and expectations for the months ahead, was that for the most part, as a company, we’re comfortable with the majority of clients’ current fund holdings that may already be fairly heavy weighted within both developed and emerging market equities, hold strong positions in Asia, as well as minor attributions to commodities and bonds, and that it puts investors in a good position to benefit from gains and hedge risk through diversification. In summary, we expect further gains from the developed markets such as the US and Europe and continue to see purchase value in the distressed emerging markets, specifically Asia and surrounding regions as well as Africa.
Gold and commodity holdings are recovering some of the ground they lost last year but still don’t show much support to warrant a huge movement back into these sectors at this time. While bonds and fixed interest, although relatively flat and unlikely to change, do provide a portion of stability but should likely form only a small part of an investor’s holdings in comparison to other holdings in the portfolio. There was some debate over emerging versus developed equities given the past several months trend which has seen developed markets continue to outperform emerging markets, but it was agreed that emerging markets remain a valuable opportunity and once they gain some traction, the potential for growth could far outweigh that in the developed markets. Most importantly, we do continue to suggest that investors hold a well balanced and diversified range of asset classes within a portfolio and that any time that they wish to review their specific portfolio holdings or discuss any necessary changes or opportunities, that they contact their Adviser to do so.
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
