It is important to note Robert´s last few words regarding interest rates. They are not likely to increase in the short term, or possibly long term, if companies, at all levels, are trying to succeed to keep the economy in good shape. At the same time, inflation could increase which means any money “safely” on deposit in the bank is losing its spending power each year.
Let´s go back to my comments about the UK. Rather than me put my words to this, I will use Robert Walker´s more eloquent script.
“The difference in returns in the third quarter are stark, with US equities seeing a strong performance especially in the big technology companies while the UK’s FTSE 100 was -5% lower on a combination of Brexit and Covid-19 fears.”
“The poor performance of the UK since the referendum is well known, as is the high likelihood that leaving the EU with or without Prime Minister Boris Johnson’s deal will make the UK relatively worse off. Most independent economic researchers forecast that UK GDP, relative to current arrangements, will be between 3% and 6% worse off in seven to 10 years if the UK and EU sign a free trade agreement, the faltering prospect of which has seen the pound fall by 15-20% since 2015. As we write the likelihood of a ‘no deal’ Brexit is still too close to call.”
The knock on effect of this lack of confidence in the UK is reduced investment in that area and, therefore, from what we have seen, investing in the UK has not been top of investment managers’ agendas. My point here is that, when you look at the performance of the global economy, do not necessarily base it on the movement of the FTSE100. This could be, and ultimately has been, the undoing of many people who have been waiting for Brexit to go through before investing. Some now are even waiting for Covid-19 to go away, but I believe that they could be waiting a long time.
Here are a couple of graphs to illustrate my point. One is from 23rd June 2016, the date of the Brexit referendum, and the other is from the start of 2020. They include two of the funds that we use and compare them to the FTSE100 and an inflation index. Remember interest rates would be little more than a flat line on these charts.