The budget was a near irrelevance. Predictable and clever in its political expediency and designed to capture the undoubted ‘feel good.’ This note looks at two larger questions firstly are the UK’s public finances on track and indeed does it matter, given where bond yields are and related to that does the budget change the likely outcome of the election?
We are at FTSE 100 highs again – it has just taken 15 years to achieve it. Unfortunately this has coincided with PER valuations that, while justifiable, are no longer that cheap either by historical or international comparison.
Earnings momentum has stalled. The balance of forecasts are declining and while much of that is attributable to a fall in commodity prices, or stock specific in its nature, this is causing concern that equity markets are fully priced. Further domestic political risk adds to a general uncertainty.
On the face of it UK equities are not expensive either absolutely, or relative to their long term history, or relative to bonds. However the UK equity market is highly skewed to a small number of sectors of which oil and gas, mining and banks dominate accounting for 31% of the FTSE 350. This note looks at valuations, excluding these three volatile lowly rated sectors and concludes that equities are not as cheap as they look. A copy of the note is available on request.
Election year is upon us and this note looks at the key issues effecting the likely result and the subsequent investment implications. It goes without saying that this is potentially the most difficult election to call for many many years. The Parties also have the sharpest policy divide possibly in 20 years too making the result important from both a macro and micro perspective. We are starting to think that, by a nose, David Cameron is the more likely winner, probably in coalition.
2014 was the year of the Dollar. We believe, the US Dollar will continue to appreciate in 2015. The US economy remains the strongest, by a margin, of the major economic bloc’s and its safe haven status looks assured. It does not have the political risk of the UK, or the divergence and monetary policy risk of the Eurozone. It sails above geopolitical risk.