Investment Insights Q3 2017

With all the major regions of the global economy growing in synch, investors are shrugging off political uncertainty. Equities have been buoyant, particularly in the US technology sector, where rising valuations are the focus of our lead article “Great tech-spectations”.

Meanwhile, Europe’s economic recovery has been gathering momentum after many years of weak growth, and company earnings have been strong. Investors have become more optimistic, leading to substantial flows into passive European equity funds. However, risks remain and an active approach to investing in the region may be more appropriate, as we explain on page 5.

In Japan, scepticism remains about the effectiveness of ‘Abenomics’. Yet we believe two out of the three arrows that make up Prime Minister Shinzo Abe’s strategy for kick-starting the economy may be reaching their targets. On pages 6 and 7, we examine some of these achievements, including improvements in corporate governance and reforms to the country’s inefficient labour markets.

Closer to home, one year on from the UK’s decision to leave the EU, it seems theonly certainty around Brexit is the lack of it. The loss of the Conservative majority after the recent general election has raised the possibility of the UK remaining in the customs union and single market. Although the economy has held up surprisingly well over the past 12 months, there are some early signs that things are getting tougher, as we set out on page 8.

Lastly, on page 9 we explore the unintended consequences of tracking an index. If you are holding passive investment funds, you may be surprised to discover how concentrated your actual exposure is in particular sectors or even a handful of large companies.

Read the latest edition of Investment Insights.

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