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Alastair George

Alastair George
Strategist


Strategic Insight blogMore

Brexit: UK Risk premium likely to remain in place

The unproductive summit of European leaders in Salzburg this week has highlighted the lack of substantive progress on finding any solution to an exit agreement for the UK which will satisfy the EU, Ireland, Northern Ireland,  UK government and UK parliament. Most importantly the declaration by EU Council President Tusk that the UK’s “Chequers” plan will undermine the single market highlights an objection in principle to the UK’s initiative for a free trade area in goods during any Brexit transition period. This principles-based roadblock suggests that tinkering at the edges – such as customs checks in the Irish Sea are irrelevant details. We see elevated political risk in the UK, potentially polarising the outcome between a hard Brexit and no Brexit. Investors will also need to consider the increased risk of a populist UK government.

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30/08/2018
Equity strategy and market outlook - August 2018
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In this month’s strategy piece, Alastair George takes heart from Fed chair Powell’s most recent comments indicating a preference for having a bias towards a wait-and-see approach to monetary policy. This is, in some respects, forward guidance on what happens after the currently priced-in Fed rate hikes have been implemented. As a result, the upward pressure has eased on the dollar and it is now, in our view, time to look again at EM equities. Emerging equities have underperformed so far this year but consensus forecast earnings growth both this year and in 2019 is well above developed market peers. Furthermore, valuations for EMs, while not inexpensive, are no higher than historical averages compared to relatively expensive developed markets. It is early days, but the apparently improved US trade relations with NAFTA members and the EU is also likely to lead to improved growth sentiment, if sustained. For bonds, a more dovish Fed may create upward pressure on US 10-year bond yields, steepening the yield curve. We believe US 10-year yields remain too low at under 3%.
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*Multiple Sectors

26/07/2018
Equity strategy and market outlook - July 2018
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In this month’s strategy piece, Alastair George believes that global equity markets remain in a period of consolidation while US interest policy is normalised even as corporate performance remains strong. Furthermore, US bond yields still appear too low given the prospect of increased issuance, a reduction in the Fed’s balance sheet and strong US growth. In respect of the US trade war, we believe the recent comments on monetary policy and announcement of additional subsidies for US agriculture underscore the resolve and political incentive for the current US administration to maintain a confrontational stance with respect to China despite the positive recent EU/US announcement. We remain cautiously positioned on equities.
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28/06/2018
Equity strategy and market outlook - June 2018
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In this month’s strategy piece, Alastair George believes that the US vs rest of the world trade confrontation is becoming the dominant narrative. We cannot rule out at this point that negative responses in financial markets may be a prerequisite to negotiating a face-saving route out of the situation for all sides. However, earnings estimates show few signs of the impact of tariffs or disappointing UK and eurozone economic data and robust growth for 2018 remains the consensus forecast. Profits forecasts have even risen in the US in recent months and the median US company is now expected to deliver close to 20% earnings growth in 2018. However, offsetting the benefits of strong US profits growth is the prospect of tighter US monetary policy and larger fiscal deficits. The recent trade protectionism-related flight to safety is understandable but in our view current US 10-year Treasury yields still appear too low. Emerging markets may continue to struggle as the Fed remains focused on US domestic condition. There is no change to our cautious outlook. We continue to believe developed equity markets are in a period of consolidation. Valuations are moving closer towards long-run averages with markets simply trading sideways as profits grow while monetary policy is normalised.
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31/05/2018
Equity strategy and market outlook - May 2018
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In this month’s strategy piece, Alastair George observes underperforming emerging markets, a strong dollar, rising volatility and a repricing of fundamental credit risk in Italian bond markets. He views these not as disparate narratives but suggestive that global risk premia are rising as US monetary policy is tightened. Political developments in Italy have reignited concerns over the sustainability of the euro project as the long march of populism in Italy has finally knocked on the door of government, only to be turned away. Italian political risk is likely to remain elevated for some months. Although there has been a notable weakening of economic momentum in Europe, consensus profits growth estimates remain stable. He believes that provided this remains the case, there is still the prospect of a benign de-rating of currently expensive equity markets as profits grow, with markets moving sideways in a volatile trading range. US foreign policy is inconsistent and remains a wildcard and the uncertainty remains at risk of affecting global business confidence. There is no change to his cautious outlook for equities.
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*Multiple Sectors

26/04/2018
Equity strategy and market outlook - April 2018
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In this month’s strategy piece, Alastair George believes that with output gaps closed future monetary and wage growth developments offer only headwinds, both for markets and levels of corporate profitability over coming quarters. Uncertainty in respect of US trade policy risks a chilling of corporate optimism, leading to a shortfall in business investment and short-term economic momentum even if the probability of an all-out trade war remains remote. After the modest falls from the market highs recorded in January, global equities remain expensive compared to historical valuation levels, according to our estimates. Record profit margins also face risks from developments in trade policy and tightening labour markets. With Fed policy clearly remaining on a tightening track, we stick with our cautious view on global equity markets.