INVESTMENTS
THE TIMES THEY ARE A-CHANGIN ’
Neil Birrell Chief Investment Officer and Manager of the Premier Miton Diversified Growth Fund Premier Miton
Is optimism over the economic recovery fading and what would that mean for investment opportunities ? It all seemed to have been going so well : vaccination programmes were being rolled out , COVID-19 was a receding threat , economic activity was picking up strongly , the outlook was positive and , with the exception of how far inflation might rise , was reasonably predictable . But that scenario has now been questioned .
Right here , right now Growth prospects following 2022 are less appealing than they are for this year and next , due in part to the pandemic-induced scarring the world economy has suffered . It would seem that those concerns are now becoming more widespread . This does not mean that the economic recovery will stall , but it is in focus . Investors look ahead and therefore asset prices discount what is expected to happen . When those expectations change , it can mean that markets move to reflect the change . Bond prices have been rising as investors have moved into assets that would benefit from those changing expectations . Equity markets have reacted as well ; companies that are more sensitive to economic activity have done less well , whilst those that are in more long-term growth sectors have done
better ; more on that below . This should not be surprising , but it has been a reasonably sharp move . Since the beginning of last year , we have been through periods of extreme pessimism and stress , which have been followed by periods of optimism , and markets have reflected those moods . In my opinion , we are now in a period of realism . The situation is much better than it was , but whilst the outlook is still positive , the longerterm real-world impact of COVID-19 will impact , and let ’ s not forget we are in an economic cycle – the next part is slower .
Central banks are doing their bit Central banks have remained unequivocally supportive through the pandemic , and that policy continues at a time of conflicting economic signals ; inflation is higher than expected , whilst the spread of COVID-19 variants is causing concerns over growth and labour . The European Central Bank has committed to maintain a “ persistently accommodative monetary policy stance ” and could even lower interest rates . That is very clear guidance ; they will not take action that would mitigate growth prospects , indeed they will retain policy that stimulates growth , even if it is inflationary . The US Federal Reserve is also reassuring , saying it would move policy very gradually if the US economy continues to make more progress . Central banks have a fine line to tread to keep recovery on track and inflation dampened in a rapidly changing environment , with fairly blunt tools at their disposal . The forward guidance they provide and the language they use in how they deliver their message is vital to how financial markets react , and that in itself will impact on the real world .
The last word Economies and financial markets are dynamic ; with the outlook constantly changing , it is important to focus on what are the real long-term driving factors . As I noted above , asset prices are starting to reflect a less rosy outlook and that is my view . Of course , I may well be wrong ; that has certainly happened before . In the short term , all eyes will be on the economic data , central bank policy and corporate results , which are favourable .
IMPORTANT INFORMATION : For information purposes and only to be issued to investment professionals . It is not for circulation to retail clients . It expresses the opinion of the author and does not constitute advice . Reference to any particular stock does not constitute a recommendation to buy or sell a stock . Persons who do not have professional experience in matters relating to investments should always speak with a financial adviser before making an investment decision . For your protection , calls may be monitored and recorded for training and quality assurance purposes .
Financial Promotion issued by Premier Miton Investors . Premier Portfolio Managers Limited is registered in England no . 01235867 . Premier Fund Managers Limited is registered in England no . 02274227 . Both companies are authorised and regulated by the Financial Conduct Authority and are members of the ‘ Premier Miton Investors ’ marketing group and subsidiaries of Premier Miton Group plc ( registered in England no . 06306664 ). Registered office : Eastgate Court , High Street , Guildford , Surrey GU1 3DE .
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