Economic data supports global markets

These are difficult times for investors, which is not necessarily a negative. The problem that investors face today is that asset prices have performed so well in the past years that prices are at their highest levels ever, and this is putting off investors as the chance of further gains is perceived as low. If you look at the other side of the problem, investors that have in the past 5 years ‘used’ their funds instead of letting them sit idle are probably holding on to handsome gains. The Calamatta Cuschieri Euro High Income Bond fund has gained 10.90% in the past year; impressive given the tight returns available on bond markets. Equity returns have also been on the high side. The Euro Stoxx 50 Index has gained a more impressive 26.90% in the one year leading to June. Calamatta Cuschieri’s equity offering is still in its first year of operation; however, it is well on its way towards similar performances.

Investors have to keep in mind that the poorest indicator of future performance is the past, however, keeping ones funds all tucked away safely is proving to be very expensive. It is important to note that the recent gains in global equities follows what appears to be a steadying of the global economy. In the U.S. the ADP Research Institute data showed that U.S. employment rose in June by most since 2012, exceeding most economists’ expectations. If employment data in the U.S. continues to be supported by positive payroll data before the weekend than, further positive movement may be expected in equity markets and the U.S. dollar.

China feared by many to be slowing economically is also showing sign of a reprisal in growth. Activity in China’s services sector expanded at its fastest pace in 15 months in June, according to a survey by HSBC. This expansion in the service sector reinforces the recovery seen in the manufacturing sector observed in June and indicates a broad-based improvement in the Chinese economy. Markets expect accommodative policies on both the fiscal and monetary fronts, in China, over the coming months.

In Europe, the European Central Bank meets today after enacting unprecedented stimulus last month. Economists are in disagreement about how long interest rates will stay near zero and are requesting details on a plan to boost lending. ECB president Mario Draghi is expected to provide direction in his speech today. It is unlikely the ECB President compromises his ‘will do whatever it takes’ attitude.

Being a little overweight on the equity side is recommended given the current market outlook. I am aware that local investors find it difficult to part from the ‘interest in important’ mentality. However, the seasoned investor knows that money is money whether it is gained from earning interest or from selling your gains.

Good Day

Antoine