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Up, down, up, down.

Date: 05/11/2018
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Depending on one’s point of view, the recent swings in markets are either harbingers of doom or a response to an overdone correction.  We sit in the latter category and do not see portents of doom at this time.  In the most simplistic terms, we feel many investors were too complacent and equity markets got ahead of themselves.  The resulting realization left, in our view, those same investors feeling exposed and led to an over correction.  As we said at the time, bad days make good entry points and we are not surprised to have seen such a strong global rebound.

We all know markets don’t move in straight lines and any moves back towards recent highs are going to have their own moments of reversal.  Yet again, the most important thing to do is to take a step back and think.  There’s so much noise at the moment that making snap decisions are as likely to add risk as they are to generate returns.  So what does a more considered view suggest?  Well, we are looking at the UK equity market.

UK equities look cheap.  But things can look cheap for good reasons and that is why it is prudent not to over rely on valuations.  In this case, UK equities are cheap because of Brexit.  We’re not going to rehash the reasons as they are familiar to us all and have been dragged out again and again and again.  Our thinking goes like this.  A no-deal-hard-Brexit is priced in to a significant extent.  If there is no deal, there is bound to be some more weakness.  But what if there is a deal?  And what if it is not as bad as some fear?  That does, of course, rather depend where you stand on leave versus remain of course.  But a deal of any sort should see, we think, a rebound in UK equities and we are actively considering increasing our positions here.

For now, the newsflow is likely to be about the US mid term elections tomorrow.  Those entrails will be dissected endlessly so we won’t add to the noise.   We have been keeping an eye on the US reporting season and not without interest that the expected 21% increase in earnings has actually come in at 27%.  That, combined with the recent fall in prices, makes US equities look better value, too, and we are maintaining our positions there – albeit we are underweight.

We have every expectation that there will be more swings in markets as the end of the year approaches.  There’s no point in being grouty about it, it’s simply a normal function of markets and investors who are increasingly coming to question just how much longer this cycle will last.  And there will also be no getting away from politics.  Like it or not, politics will impact on sentiment – both positively and negatively.

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The value of investments and any income from them can fall and you may get back less than you invested. KW, KW Wealth, KW Protect, KW Wellbeing, KW Institutional, KW Partner and KW Private Office are trading names of KW Wealth Planning Limited (registered number 01265376), KW Investment Management Limited (registered number 06931664 ) and KW Trading Services Limited (registered number 03109469) which is a member of the London Stock Exchange. Each of these companies is authorised and regulated by the Financial Conduct Authority and has its registered office at 13 Austin Friars London EC2N 2HE. KW investment Management Limited is also regulated in South Africa by Financial Sector Conduct Authority. All these companies are wholly owned subsidiaries of Kingswood Holdings Limited (registered number 42316) which is incorporated in Guernsey with registered office at Regency Court, Glategny Esplanade, St Peter Port, Guernsey, GY1 1WW.