Hold in May and sail into summer...

Brian James, Divisional Director and Head of Office, Brewin Dolphin Plymouth, offers his thoughts on the financial market place.

The FTSE

The prospects for UK equities remain positive although, as with most risk assets, the volatility is likely to be more pronounced as the reassuring warmth of quantitative easing is replaced by the harsh reality of market forces. However, overall the improving economic environment in the US and a stabilising eurozone are likely to underpin the prospects for UK shares. A burgeoning economic recovery in the UK may be unimportant for FTSE revenues but it will mean that any rise in interest rates and gilt yields remain modest and the valuation gap between equities and other assets remain attractive.

Japan

Japanese equities are seen to be benefiting dramatically from the impact of Abenomics, mostly from the weaker currency and partly hopes of greater domestic demand. Currency gains from the yen’s sharp decline will clearly lead to higher profits from overseas. Domestic Japanese companies however, are also expected to take market share, pass on higher wages and suffer higher import costs. There are signs of recovery in terms of trade and wages, although perhaps achieved at the expense of margins. So not plain sailing.

Europe/eurozone

Positive revisions within the manufacturing sector have echoed other news suggesting stability is returning to Europe – even though it remains mired in an 18 month recession. Draghi’s famous “whatever it takes” speech has continued to apply powerful monetary stimulus to the Eurozone. The brighter monetary environment is encouraging, although the long term prospects for the region are underwhelming and tail risks remain.

S&P 500/US in general

We remain extremely positive on the US. The economy is creating significant wealth as a result of the housing market recovery and rising employment. Previous drags on growth have included high inflation for non-discretionary spending - principally higher food and energy prices, but these have actually fallen over the past twelve months. Cheap energy is facilitating a manufacturing renaissance, which should be positive for the dollar, for US companies and (eventually) feed into higher wages.

Property

We have recently increased our weighting in the commercial property sector, as we believe the improvement in the UK economy is starting to create higher demand for property nationwide. Current rental reviews should reflect the more optimistic economic tone and the last set of very depressed rents due for review in the near future, as we approach the five year anniversary of the financial crisis and the associated property crash. So on balance we think the markets’ glass is more than half full as we head into summer.

Further information

The value of investments can fall and you may get back less than you invested. No investment is suitable in all cases and if you have any doubts as to an investment's suitability then you should contact us. The opinions expressed in this document are not necessarily the views held throughout Brewin Dolphin Ltd. Brewin Dolphin Holdings PLC and its subsidiaries (including Brewin Dolphin Limited), as well as their Directors, representatives and employees, accept no liability for any direct or consequential loss arising from the use of this document or its contents.

We or a connected person may have positions in or options on the securities mentioned herein or may buy, sell or offer to make a purchase or sale of such securities from time to time. In addition we reserve the right to act as agent with regard to the sale or purchase of any security mentioned in this document.

For further information, please refer to our conflicts policy which is available on request or can be accessed via our website at www.brewin.co.uk

The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.