Tatton Weekly: Consumers make UK the G7 growth champion; Chinese New Year; Review of 2016 AIM stock market returns

Consumers make UK the G7 growth champion;   Chinese New Year – an outlook to the year of the Rooster;   Review of 2016 AIM stock market returns;   Why the average private investor underperforms

Consumers make UK the G7 growth champion

Before getting overly optimistic about the UK’s far more than anticipated consistency in growth, it needs to be highlighted that it was neither increasing exports on the back of the much weaker £-Sterling, nor companies’ expansion investment that drove the improvement but entirely the resilience of the UK consumer. Spending accelerated as the UK public appears to have put any potential concerns about the UK’s longer term prospects outside the EU firmly to one side. Unfortunately, the spending increase was not funded by income, but by credit and is therefore unlikely to be sustainable. The government’s newly announced industrial policy may therefore be more relevant than its fairly moderate measures would currently suggest. Many commentators see darkening clouds on the UK’s 2017 economic horizon as increased import prices are expected to put a dampener on the UK consumers’ spending spree.

Markets, in my view, signalled an end to Trump’s stock market honeymoon. We experienced a marked 4% fall of the previously strengthening US$. The fact that parts of the US stock market hit new all-time highs – the Dow finally jumped over 20,000 – had much to do with the same reasons that pushed the UK’s FTSE higher when the £-Sterling fell post-Brexit and some very strong corporate results announcements.

Chinese New Year – an outlook to the year of the Rooster

Unfortunately, the election of Trump as US president introduces a fair degree of uncertainty into many expectations and forecasts. This is because there is a chance this target could be harmed if trade issues with the US emerge as President Trump embarks on his ‘America First’ trade policy, with possible tariffs placed on Chinese goods. This could have a dampening impact on growth – not just in China, but also the US and thus globally. We note that Xi Jinping, who spoke at last week’s Davos forum, was keen to stress that “open markets and rules-based trade are the best engine” to “power global growth”. Who would have thought only a years ago that the Chinese leader would become the leading advocate of ‘free trade’, whereas an American President is doing the exact opposite?

Review of 2016 AIM stock market returns

Across the UK stock market last year, the large cap FTSE 100 returned 19.1%, the All-Share 16.1%, the AIM All-Share (small and micro-cap) 16.1%, Small Cap 12.5% and the FTSE 250 5.1%. Thus the Alternative Investment Market (AIM) returns were just marginally below that of the FTSE 100 and the All-Share and significantly better than the FTSE 250 Mid-Cap and the Small-Cap index. So why did the AIM index, which many investors are wary of because of its relative illiquidity and mostly micro-cap nature, perform so much better than mid and small caps?

Why the average private investor underperforms

There is an adage that is often cited amongst the investing and advising community: “It’s time in the market, not timing the market that result in the best long term returns”. Investing to achieve the most reliable long-term returns possible is not a sport in which you try to gamble against the other players to get to the goal, but a journey through which you find the safest route to your destination. You can catch the winds of the market in your sails, but you can’t beat the weather.

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