Financial Friend Update
22 September 2021
To all Financial Friends
You may have been made uneasy by recent events in the markets. We have seen the FTSE 100 fall close to 6,800 points. As I write however, at 10.30am today 22nd Sept, The FTSE has risen by 1.15% adding to yesterdays gains, the index is now again hovering above the 7000 level. Our students investing in the 100 index will have seen gains of 19.17% whilst the FTSE World Index gained 23.95% over 12 months to date.
Just a quick read?
Summary
There have been recent events in the market that have caused falls in values. Recovery from those falls are already appearing. The message is to keep calm and carry on! At the end of these words is commentary of the shape of a portfolio that you might like to consider. Go straight there or be better informed by reading more. As a subscribing member to your Financial Friend please do take the time to contact me for further explanation and discussion or to get your questions answered. This is why your Financial Friend is here. Here from you soon?
First the Bad News
Uneasy and disturbing happenings that may have ruffled investors feathers are these: China Evergrande is one of the biggest property (real estate) companies in China. The companies growth was largely built on debt. They borrowed to build and are now in trouble as the Chinese housing market has slowed. They owe interest on domestic and international (fixed interest) bonds and will struggle to meet the payments due. Concern has been that the restructuring of the debt may trigger a global crisis (they are that big) .
There has been initial concern that this could be big enough to cause the Chinese economy to slow down with serious knock on effects across the global economy. However analysts and economists suggest the impact will be market volatility rather than a serious knock on global problem. Experience suggests that as these things unravel, further alarms and issues may arise causing market volatility (useful if you are one of our students with a 'profit taking' strategy?)
Here in the UK a squeeze on people's incomes is on the way. Rising energy prices. Already inflation is biting (have you felt it yet?). Increases in tax and NIC will arrive. Those struggling on low incomes will lose £20 a week income. At some point (the turning point as I express it) interest rates will begin to rise. Increasing payments on mortgages, rising rents and loans, will reduce our disposable incomes.
The shortage of lorry drivers is causing distribution problems. Gas prices have rocketed and (just announced) the government are stepping in with millions of pounds to keep CO2 available. CO2 has essential uses few of us knew about. Money for furlough payments in lockdown, keeping CO2 available and a multitude of other demands (social care for the elderly) require the government to either borrow even more and/or increase taxation at a time when we need economic recovery to be maintained as we move hopefully, out of Covid.
Now the Much Better News
My own considerations, added to those in the financial world, with whom I have discussed these issues, are, to remain calm and carry on! Your own funds will have shown profit to date. Those who took note of past emails to go to inflation linked bonds have seen a return in that sector of over 12% in just 6 months. In recent times infrastructure has returned over 4%. Those investing monthly for the last 12 months in the FTSE 100 Index have seen gains of over 15%.
Gold has fallen steeply but is now reported as rising as manufacturing output in the UK, US and China falls. Failing supply lines, staff shortages and fears of the effect of the rising number (globally) of delta variant cases are reasons for turning to Gold. The main trigger for rising gold prices however may well prove to be the turning point (Interest rates rise and quantitative easing support is cut).
Today the Federal Reserve in the USA are to announce whether they will continue to support their economy with low interest rates or indicate a coming rise in interest rates to seek to control inflation. Commentators expect rates to remain the same as now. Hints of future 'tapering' (gradual increasing rates and reduction of money supply over time) could support gold as an asset in your portfolio.
So against the current background might you be comfortable with the following strategy? A broad diversification for some of your portfolio but a healthy balance invested with conviction across Inflation linked bonds, infrastructure, high yielding equity funds, gold (though volatile) and perhaps a stronger emphasis on global (rather than UK) holdings? Brexit and the non-appearance for now of a US trade agreement looks disturbing for the UK?
PLEASE NOTE: A financial or economic commentary like these, are written to explain, interpret or give an opinion on economic events and markets to help readers understand what’s happening and why it matters. Designed to help you make informed decisions of your own by making you aware of opportunities, risks and potential rewards in the market.
