Market Update
Returns were mixed for equities in local terms as, aside from US equities which made a +0.7% return, all major regions fell. Similarly in Sterling all markets were down bar US and global equities which gained +0.8% and +0.1% respectively. Both European and Japanese markets returned -0.9% in GBP, followed by UK equities which returned -1.2%. The biggest laggard was emerging markets which fell by -3.5%. This comes as the depreciation of the Turkish Lira continues to have a ripple effect on other EM currencies. According to the Institute of International Finance, investors have pulled $1.3 billion from EM stocks in the last week and $100 million from emerging market debt. The Pound continued to fall against major currencies, depreciating by -0.4% against the Yen and the Euro, with a -0.1% decline versus the US Dollar. UK, US and German 10Y yields were almost unchanged, all moving up or down less than a basis point. Commodities had a difficult week as Metals lost the previous week’s gains, returning -4.3%. Oil lost -2.5%, while Gold fell by -2.2%. All in USD terms.
CIO Analysis
There’s an old story about two investors enjoying a hot dog by a stand: “Would you eat the sausage if you knew how it was made?” one asked. “Would you eat it if you didn’t?” replied the other. Last week, Mr. Trump tweeted about his idea of abolishing mandatory quarterly earnings reports in favour of semi-annual reports. The problem goes to the heart of investing: Can information become a problem? Some would argue that such a move lifts pressure on the CEO’s to deliver on a quarterly basis, removes costs and favours long term investors over shorter term players. Others, proponents of the efficient market hypothesis, would argue that stock prices move on estimates more than facts and information is updated in real time, so the move wouldn’t change volatility patterns or CEO short-termism, an attitude usually linked to compensation rather than reporting. As investors we would not want to see moves that compromise real transparency. If the elongation of reporting periods is used to hide problems, markets will react. If, however, the current governance framework remains unchanged, then any backlash should be limited.
David Baker, CIO