Year of the Horse

Xin Nian Kuai Le / Happy Chinese New Year to our Money Matters readers and welcome to the Year of the Horse! After a break for the Chinese New Year, our Shanghai Head Offices have now resumed normal business hours and our weekly newsletters too will now continue.
Asia had a bit of a shorter trading week following the Chinese New Year holidays but the Hong Kong Hang Seng ended the week up about 0.5%, the UK FTSE followed similar suit ending the week up 0.6%, and the US S&P also in the same range up 0.8%.
Corporate earnings are still underway with Cisco, Pepsi, Metlife and others to report this week. For the majority of companies that have reported already, of those, about 67% have beat expectations, matching the level of the past several quarters and are above the 20 year average of 63%. However this positive news hasn’t been reflected too much in the markets with concerns over manufacturing slowdowns and weaker than expected job numbers seeming to be at fault for this. The US FED also continued their reduction in stimulus by another 10 billion, bringing the monthly spending total down to 65 billion (USD).
Although the stimulus reduction was expected and went through without much notice, US Jobs were not where they needed to be, with a second month of fewer than expected jobs created. It remains to be said that job creation is one of the most powerful reinforcing cycles that would benefit the economy. The more people working means more income and savings and by more people having working mobility, this could likely result in them looking to upgrade their homes thereby strengthening the housing market, and ultimately, with all of this, it generates more taxes payable to help fund the government and community programs. It’s much easier said than done but hopefully we’ll see more focus on job creation from governments around the world. In addition, many central banks met last week, including the bank of England and the ECB, but none had anything too important to announce and left things rather unchanged.
So the debate continues and the question remains – were last week’s positive gains just a pause to the ongoing concerns? Or will the slower start to the year be a temporary delay following last week’s positive gains? We would favor the latter as expectations are still pushing for a positive year in equities, and after the Christmas and Chinese New Year months we may see a return to manufacturing and production numbers. Don’t get us wrong though, there are still concerns and these are weighing on global markets, especially the emerging markets, but none that are unprecedented nor daunting enough to think that the markets can’t push higher.
Therefore we’ll continue with a balanced and diversified approach to ride through the volatility, and hold a mix of asset classes as well as having both emerging and developed market exposure to capitalize on some of the short term gains but ultimately, keeping the longer term picture in focus is key.
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