A recent recurring topic when talking to serious wealth advisors in the UK is what strategies are left in the asset allocator’s tool box to maintain and enhance portfolio values? When you actually start to pick away at the micro/macro-economic and political climate both here and abroad one gets almost overwhelmed by a sense of doom and gloom.
Many of our present day challenges, individually, let alone collectively, based on past economic shocks, should have triggered a massive stock market sell off, a currency crisis and asset deflation. True there have been some downward pressures on portfolio values and crypto currencies in particular have lost more recent converts a substantial sum of money but in general the asset bubble is nicely inflated and continues to expand especially in the residential and commercial property markets both here and in Europe.
True inflation above 15% per annum, historic energy prices, Central Banks stopping the printing presses and a tightening of monetary supply through the blunt lever of interest rate rises are all potential seismic shock triggers. Yet there is more; Brexit has not really shown any true benefit to date, Britain’s growth prospects top only Russia in the G20 list, political instability worthy of any Italian farce, stagflation, a summer of discontent and trade union playbook wage spirals – dystopian reminders of the 1970s, such as British Leyland, the three day week, Red Robbo and Ken and fast forward to the present, Arthur Scargill back on a picket line.
Real prospects of the lights out and factories shutting down all over Europe owing to Merkel’s folly and fixation on binding the whole of Europe to Putin’s Russian resources and “Climate Change Champions” pressing for far too costly alternatives at COP 26 pace rather than the long term sustainable transition which is needed. Covid 19, Northern Ireland Protocol, unskilled labour shortages and supply issues, war in Ukraine, Russian nuclear threats and sabre rattling in the South China sea, Monkey Pox, return of Covid restrictions, a very large queue of frustrated holiday makers in Dover ……and a partridge in a pear tree!
I could go on and I think this is the thing we are just fully overloaded with wave upon wave of truly monumental issues. However, residential values continue to climb, commercial values hold steady and the markets and funds stay liquid. Such factors in isolation have rocked markets and asset prices substantially in the past, 1974 oil crisis, 1988 property crash, 1992 Black Monday currency crash, 1998 Russian Sovereign Debt crash, Dot Com and Global Financial Crisis to name the most outstanding.
So as the TREIO team pack their bags and head off to the beach, in between the ubiquitous rose and a read through the trendiest of Booker Prize novels, we will be considering what next for commercial and residential property. Spoiler alert! It’s not all positive and if history repeats itself property will be a 14 month lag behind the equities market. With risk free rates rising and multipliers decompressing the writing is clearly on the wall. The art of property investing will be spotting “worth” not “value” when the asset bubble finally and spontaneously bursts.
We will discuss this further in our September Insight and despite this downbeat prophecy wish all our Clients, Introducers and Professional Advisors a pleasant and restful summer break.
Chris Horler
CEO, TREIO