Good news turns bad news – again

Globally, stock markets finished one of the best Januaries on record only to start February with their worst week for two years. Of course, from a UK investor or rather £-Sterling perspective January 2018 was not such a great month, which is why we are this month presenting the same asset classes from a £-Sterling and a US$ perspective, to illustrate the difference. The pound had gained against the US$ and also somewhat against the €Euro, when figures proved that the UK economy was doing better than widely expected. A stronger domestic currency makes overseas investments appear to have lower value, even if they had not changed at all in the local currency. That the UK stock market fell regardless is still a function of the currency, because so many of the big companies earn the bulk of their revenues overseas – which are now worth less than before.

UK blues

A great deal of UK news came out this week, and not much of it uplifting. On Wednesday, outsourcing firm Capita gave a profit warning and announced a dividend cut, which saw its share price tumble nearly 50%. After Carillion just two weeks ago, it felt like another blow in the ongoing story of government outsourcing to the private sector running into difficulties. To make things worse for the government, a leaked cross-departmental analysis of different post-Brexit economic growth scenarios found that the UK economy would be worse off under every one considered. And, to put the cherry on top, rumours abound that a fresh Conservative leadership challenge is imminent, after a press report that one senior government minister is preparing to resign and trigger a vote of no confidence against Prime Minister May from the backbenches.

Earnings season update– Q4 / 2017

We regularly cover the quarterly corporate earnings announcement season, since current and prospective earnings and dividends are, of course, the fundamental source of investment return from equities. A company’s earnings announcements therefore always influence its share price. However, this week has shown that the other factors in the valuation of the earnings can often overwhelm the current releases. We’ll discuss the valuation and its components in future weeklies. For now, we’ll take a quick look at progress of the current global earnings season.

US healthcare revolution?

As already commented at the beginning, US stock markets came under pressure this week, with healthcare stocks as previous multi-year investor darlings hit particularly hard. The catalyst was the seismic announcement that the bank JP Morgan (JPM), Berkshire Hathaway (Warren Buffet’s large insurance and consumer products conglomerate) and internet mail order giant Amazon will form their own healthcare company. The press announcement stated that its aim will be to reduce the “ballooning costs of healthcare” which act as a “hungry tapeworm on the US economy”.

An India Update: Elections, Reform and Chinese Competition

In our article on China last week, we mentioned that India may look to lay comparable (infra-) structural foundations to those of China, so that it can succeed China in becoming the great lowcost manufacturer of the world over the coming decades. It is difficult to see this happening in the near term. However, if the country does tread this path, then it must continue to deliver economic, social and environmental reform and maintain a stable Government.


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