July - September 2019

July - September 2019
 
Market Summary of Q2
Moving Forward – Preview of 3rd QTR
US
Europe
Asia Pacific 
GBB News 
The Secondary Market & Off-market transactions
 
Market Summary of Q2
Q2 saw developed markets gain although May was a rocky month due to apprehension about the trade war between the US and China escalating. Central banks became supportive and combined with tension easing on trade between the two superpowers by the end of June it could be looked at as a favorable quarter overall. 
In the US the S&P 500 hit a record high. The Fed didn’t impose any rate cuts at its June meeting, but indications are they are due. Economically sensitive areas generally performed well throughout.
The Eurozone made gains, then losses in May and gained again in June. Mario Draghi (President of the ECB) suggested more monetary easing if inflation does not improve.
UK shares did well in Q2 even though Brexit became no clearer with the resignation of Theresa May during May.
Japan was the worst performing of the major developed markets. The Yen got stronger, as it carries a safe-haven tag during times of geopolitical uncertainty and risk. 
Emerging Markets were behind their developed counterparts. Trade uncertainty undermined Chinese and South Korean markets. The best performers for the period were Argentina, South Africa, Indonesia and Turkey.
Government bonds took a blow due to price increases, while corporate bonds achieved total returns and comfortably outperformed Government bonds. 

Moving Forward – Preview of 3rd QTR
 
USA
Q3 looks like it could be a bumpy ride for the US and a ripple effect could hit hard.  Many things are riding on what the FED are going to do in this quarter with the daunting prospect and murmurings that there may be the first rate cut in a decade on the horizon which is never good news.  With this in mind the larger cap companies will likely outperform small to medium caps with defensive stocks doing likewise against cyclicals. During this period expect a strengthening of the US$.

The Fed – The Fed – The Fed
The story of this quarter will be rate cuts if they happen.  If so, it will be the first in over a decade. The ripple effect first and foremost we predict will be in 10-year and 30-year yields and let’s be crystal clear if that subsequently leads to an inversion on the 10-year – 2-year yields then the last time we saw this was just before in infamous GFC. This in our view will lead to short-term funding rates getting out of control and maybe even the overnight Fed Funds Rate (FFR) increasing. 
The follow-on from this would likely mean yet another rate cut by the Fed and the suggestions are we could see possibly two rate cuts during this quarter reaching anywhere between 2 – 2.25% range, in the past this has then made the Fed implement daily repo op’s, this would be the first time since the GFC, resulting in a liquidity crunch which would likely be upon us by October. 
The outlook on oil is not positive, a weakening in global growth could well play a part in the decline of oil prices during the quarter for Brent and WTI. 
With rate cuts leading to uncertainty in the markets precious metals are a safe-haven for investors we predict and increase in gold and silver during this period. In recent times the near-term support level for gold has been US$1490, this is what we call the neckline of a common topping pattern, in other words this is the support line of which gold would look to at least maintain and move upwards from. 
As far as earning go, if everything mentioned above plays out then we are likely to see the S&P 500 decline for a third straight quarter year over year.  This would be first time we have seen this since 4th QTR 2015 – 2nd QTR 2016.  We see areas such as materials, energy and IT becoming weaker, but there may be a ray of light for sectors such as real estate and utilities. On the overall outlook for the year we do predict earning growth and revenue growth but of no more than 3 and 4% respectively. These figures were much higher at the start of the year of course with expectations in some areas as high as 11.1% but that is unachievable now and as time goes by even the predictions of 3 and 4% could be under pressure. 
Conclusion: We are looking at an unstable US market in this quarter holding current positions and looking closely at opportunities in the UK and UK companies that are looking further afield.

Eurozone
Although we don’t see huge growth in the Eurozone over the quarter we feel it may be able to stave off ripple effects from the Fed in the US raising rates.  We feel equities will hold their own and maybe make gains, and the same as the US with utilities and real estate doing well along with consumer staples. Energy will be likely to come under pressure though, but we may see turn-around of unpopular sectors at the start of the year gaining some momentum.
Expansion of the Eurozone once again will be minimal with economic data likely reading lackluster, with inflation likely to drop from the 2.1% it was at the same period in 2018.  This will inevitably lead to speculation of further stimulus from the ECB to try to boost the stagnant economy, with a focus on restarting quantitative easing and purchasing assets to meet the inflation target.
Italy will be focal point with potential political change and Spain will be preparing for a general election on November 10th, thus being the 4th in only 4 years with the last election not producing a coalition able to govern. 
Conclusion: There won’t be much movement in the Eurozone not many shining growth examples to look to, maybe movement on Brexit may see certain sectors liven up. 

The UK
UK equities will likely follow the trend we expect from rest of the Eurozone with modest gains in this quarter but it will be a mixed bag for sure. Stocks that are ‘perceived’ to have defensive qualities will benefit most from the sentiment and concerns over the global economic outlook. Defensible earnings growth is what investors are looking for in so called ‘Quality Growth’ companies. 
If defensive sectors combined with quality growth stocks do well then the UK markets, we feel the UK will end up in positive territory for the quarter.  With the weakness of the Sterling we should see a continuation of value opportunities being acquired from both trade and private equity buyers as cheap deft financing is readily available.
Areas that are economically sensitive may have a bleak outlook especially in the larger financial and commodity sectors, leaving the FTSE exposed and open to poor performance.
If policymakers take the steps of moving towards fiscal measures instead of monetary to help stimulate economic activities, then any real detriment can be averted. Q2 growth was confirmed as -0.2% so a loss of momentum in the UK is likely and of course the black cloud of Brexit still hovering over the whole of the UK we wait to see if October 31st is a realistic date for leaving the EU.
Conclusion: Although Brexit weighs heavy on the UK, defensive options coupled with a weak Sterling offers opportunities previously unforeseen. 

Asia Pacific
Japan may see a currency resurgence during the quarter off the back of rate cuts in the US.  Upper house elections are due to take place in July with Shinzo Abe expected to run out winner but if the 2/3rd’s majority is not obtained then the constitutional reform Mr. Abe is seeking may not transpire.  At least continuity will be a major factor for equity investors for the foreseeable future relieving uncertainty surrounding a rise in consumption tax. 
Bi-lateral trade with the US will be on the table in this quarter with progress expected to be steady as the US are looking for concessions that were already stipulated in the framework of the multi-lateral TPP negotiations that the US withdrew from, so we don’t envisage any unseen hurdles during this process. A weakening Yen may result in the Bank of Japan easing deflationary pressure.
Data suggests a number of share buy-backs are on the horizon (in our opinion) as sentiment from corporate managements are that their share prices are currently attractive, with such buybacks consistently rising year-on-year. 
Outside Japan, we envisage equities losing value in the 3rd Quarter as trade tensions seem to be set to continue and concerns relating to global growth.
Hong Kong SAR, after 3 stellar years we feel will be one of the weaker indexes during this period with tensions turning into violence, and we see nothing in Malaysia, Singapore or Thailand that we feel will post positive returns during this period, underperformance will be the norm in these markets. 
China could hold firm as it is likely to announce new policies to curb domestic weakness.  Though this is an unpredictable market given the uncertainty surround the trade tensions with the US as we await the next move from both sides, whether it be reconciliation or more tariffs.
Taiwan could be the surprise of the region as the technology sector is on the rise and we expect a number of stocks to benefit.
Conclusion: A few rays of hope in the region but overall positive sentiment remains low.

GBB News
Private Equity – Positions will be becoming available for our equity division to our existing database and new clients in exciting positions in areas such as space flight with Richard Branson’s IPO on the horizon to merge with Social Capital Hedosophia (SCH) on the NYSE at the end of October.  SCH is already listed on the exchange so Virgin are ahead of the competition (Elon Musk's SpaceX and Jeff Bezos's Blue Origin) by not going through the process of a traditional IPO to raise capital to list on the exchange.  Virgin Galactica already has 600 paid passengers and a waiting list of 3700. By 2023, it is forecasting revenues of $590m and expects to have flown more than 3,000 passengers.
The New York Stock Exchange now values Virgin at $1.5bn.
Social Capital Hedosophia will be taking a 49% stake in Virgin in exchange for around a $700m investment. SCH is a special-purpose acquisition company that was specifically designed to allow investors to invest in a company looking for a private tech firm to take public and in this case it certainly served its purpose. 
We will have a selection of tranches at different stages through this year and into early 2020, your advisor will furnish you with full details of how to gain access through us on the Secondary Market. 

The Secondary Market
The beauty of the secondary market is that when a corporation, fund, trust or bank own large amounts of stock spread over various investment vehicles, there comes the time to want to cash in on profit but also the necessity due to certain statutes of limitation to have to cash in on profit or loss.  Using the open market runs the risk of adversely affecting the market price if large amounts of stock are traded, especially if the selling entity owns more of the particular stock spread over different investment vehicles.
This is where Global Business Brokers come in and facilitate.
We also have many private clients that at some stage need liquidity from certain individual positions and have various reasons for using Global Business Brokers and not dealing with high street brokerages, we are able to facilitate this by offering positions to our equity buyers and also to new prospective clients.
For further information check it on Wikipedia: https://en.wikipedia.org/wiki/Secondary_market
The secondary market is thriving and as our client base grows so does Global Business Brokers reputation for being a reliable source to buy and hold or sell.
Our model revolves around the fact that we are able to buy ‘Publicly traded stock in a private capacity.’
 

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