July - September 2018

 

Market Summary of Q2

Moving Forward – Asset Allocation

China’s EV Market – Onwards and Upwards

GBB Latest News

 

 

Market Summary

 

The continued synchronized expansion in global activity provided a steady backdrop for asset markets. With inflation decelerating amid weaker oil prices, most asset markets experienced unusually low volatility during Q2, even compared to the relatively calm levels of the past 5 years. This steady economic backdrop, combined with ample global monetary accommodation, supported a relatively tranquil environment for the past 3 months.

 

Bolstered by a weaker dollar, non-U.S. stocks led the global stock market rally for the second quarter in a row, with particular strength among small-caps. In fixed income, most categories posted low single-digit positive returns for the second quarter. Falling commodity prices dampened inflation expectations and boosted longer-duration bonds. The yield curve flattened modestly as shorter-term interest rates rose, while tightening spreads again boosted the returns to corporate and other credit-bond categories.

 

Growth and Inflation Steady

 

The global economy continues to expand in a synchronized fashion, with most developed economies in more mature (mid-to-late) stages of the business cycle. Relatively steady economic growth has been underpinned by a turnaround in export-oriented sectors and manufacturing activity. Nearly 90% of countries are reporting higher new export orders, and global trade growth has risen to its highest level since 2011.

 

 

China

 

China’s reacceleration supported these trends, although late in 2017 policymakers began to rein in policy stimulus. China’s economy remains broadly steady, but signs of slowing momentum in industrial activity and housing suggest most of the upside has already occurred.

 

Eurozone

 

The zone is on a mid-cycle upswing, with consumer and industrial-sector confidence at multiyear highs and rebounding core inflation. The U.S. economy remains a mix of late-cycle dynamics. Manufacturing activity has reaccelerated over the past year amid strengthening global demand, but rising wages are crimping profit margins and banks have tightened their lending standards for potentially overextended segments of the economy such as commercial real estate and autos. Inflation may be range-bound as moderating shelter costs and lower oil prices act as headwinds, but tighter labor markets and a possible rise in food prices present upside pressures.

 

Recession Risks Remain Low

 

This is true globally, although less accommodative policy in several countries, including China, may constrain any upside to growth going forward.

U.S. stocks: Growth and large cap continued to lead

 

Growth and large-cap stocks continued to outpace other U.S. equity categories in Q2 due to their exposure to the improving international economic backdrop. Sector performance was varied, though mostly positive, with only energy and telecommunication services experiencing outright declines—due to falling crude oil prices and price competition, respectively.

 

International Stocks and Global Assets

 

Non-U.S. stocks posted strong gains for a second quarter in a row. A weaker dollar in Q2 boosted returns in most developed markets, but was a minor detractor from emerging markets. Both developed- and emerging- markets equities benefited as international corporate earnings accelerated into positive territory, following several years of profit recession. Attractive valuations are favorable for international equities—P/E ratios for most equity markets are lower than those in the U.S. and the U.S. dollar remains at the upper end of historical ranges versus major currencies.

 

On a secular basis, we expect GDP growth of emerging countries to outpace that of developed markets over the long term, providing a relatively favorable long-term backdrop for emerging-markets equity returns. The recent flattening of globalization trends could reduce the correlation between U.S. and international equities from such elevated levels, a secular shift that would likely provide greater diversification benefits for non-U.S. equities within a global portfolio.

Fixed income: Falling yields, narrowing spreads supported returns

 

Moving Forward - Asset Allocation

 

Late cycles have the most mixed performance of any business-cycle phase, with more limited overall upside than mid-cycle phases. There is less confidence in stock performance, though stocks have typically outperformed bonds. Inflation-resistant assets, such as commodities, energy stocks, short-duration bonds, and TIPS, have typically performed relatively well.

 

Any inflation erodes the purchasing power of portfolios. In addition, stock and bond returns have historically experienced headwinds during periods of rising inflation. Further, when inflation has been higher and more volatile—as it was in the 1970s—the performance correlation between stocks and bonds increased, leaving inflation-resistant assets such as commodities as one of the few diversifiers for stocks during these periods.

 

Even though the performance of the major asset classes tends to deteriorate when inflation is rising, inflation-resistant asset classes—such as commodities, gold, commodity-producing equities, and short-duration bonds—have historically held up better in such environments. A strategic allocation to a basket of such assets may help investors manage the risk that inflation could be higher than anticipated over the long term.

 

China’s EV Market - Onwards and Upwards

 

China is now aggressively championing the EV. The world’s second-largest economy wants 11% of all car sales to be electric by 2020. This should add up to nearly 3 million such vehicles sold annually. Sales of “New Energy Vehicles,” as they are called in China, accounted for about half of all plug-in electric vehicles sold globally last year (and many were manufactured by China’s own automakers).

 

That matters because where China goes, carmakers will follow: While the US car market has plateaued at around 17.5 million units sold annually, China sold more than 28 million vehicles last year and its market is growing quickly.

To further accelerate its transition to electric mobility, China is throwing massive amounts of money behind charging infrastructure and financial incentives. State news agency Xinhua said the government will deploy 100,000 public charging stations in 2018 alone, almost doubling the current total of 150,000. The US has only about 41,000 public charging outlets or plugs (at about 16,000 stations).

 

 

GBB latest News

 

Our main focus for the year was H-Shares in Hong Kong and our main allocation up to 3^rd QTR has yielded solid gains for our registered buyers and sellers and is due for a major move this quarter.  For further information please contact us direct.

 

If you have not dealt with the Secondary Market or Off-Market trading before, contact us for further information and one of our Advisors will be happy to explain what we can do for you. The way we work involves less red-tape, easier access to equity and does not involve traders, we are able to acquire publicly traded equity in a private capacity.

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Important Information

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action. Global Business Brokers are active in the Secondary Market and do not trade stocks for its clients, we act as a facilitator for off-market transactions. Quarterly Reports are for informational purposes to provide our buyers with our general outlook for each quarter. The views contained herein are those of the author as of July 2018 and are subject to change without notice; these views may differ from those of other Global Business Brokers Employees. This information is not intended to reflect a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Investors will need to consider their own circumstances before making an investment decision. Past performance cannot guarantee future results. All investments involve risk. 

Global Business Brokers Market Report 2018

 

Dr. Timothy Windsor