Best Ideas Portfolios: July roundup

Evidence is growing of an economic slowdown, caused mainly by the US-China trade war uncertainty.

FacebooktwitterlinkedinmailFacebooktwitterlinkedinmail   by Kasim Zafar, 16th August 2019

July was named by the Roman Senate in honour of the Roman general Julius Caesar, it being the month of his birth. Much like Caesar, July was wrong-footed by a surprise ambush.

The start of the month continued the bullish sentiment from June. Presidents Trump and Xi had agreed to restart trade negotiations and the US Fed was widely expected to cut interest rates, both of which drove equities higher. So strong was the expectation of easier monetary policy that neither deteriorating economic data (especially in Europe) nor seized oil tankers in the Strait of Hormuz were enough to derail the bullish sentiment. The central banks were coming to save the day, again.

In the UK, after the pageantry of the Conservative Party leadership contest, Boris Johnson took up residence in Downing Street. As he announced appointments to his cabinet, the intent to deliver Brexit became clear. Although this drove down the value of sterling, investments in foreign currencies benefited. The icing on the cake was the trade delegations of the US and China meeting in Shanghai for the first time since negotiations broke down in May.

On the last day (the back end) of the month, cracks started forming. The Fed delivered an interest rate cut, but Chairman Powell confused things in the press conference, referring to a “mid-cycle adjustment”. Everyone is scratching their heads as to its meaning. Finally, on 1 August Trump tweeted that while trade negotiations continue, he was adding another 10% tariff on yet more US imports from China. Markets fell.

I’m increasingly concerned about fragility. Evidence is growing of an economic slowdown, caused mainly by the US-China trade war uncertainty. Evidence is growing the trade war could become protracted and I don’t think there is much that easier monetary policy can do to help with that.

Our shifts towards higher quality companies within growth assets and reduced risk in our defensive assets will deliver portfolio robustness whichever way markets evolve.

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About the author: Kasim Zafar

Kasim graduated with a BSc (Hons) in Physics from Imperial College and is a CFA charter holder, being a regular member of the CFA Institute and CFA UK. He began his career in investments in 2002, gaining experience as a portfolio manager and senior analyst of global capital markets. His experience spans multiple asset classes, constructing portfolios with varying risk/return objectives and active risk management processes.

Kasim is the portfolio manager for the EQ Investors Best Ideas and Absolute Return portfolios. He is an active member of the investment management, strategic asset allocation and fund selection committees.

When not immersed at work, Kasim often finds himself stumped and constantly amazed by his young daughter at home. He also enjoys spending time in the kitchen practising his “cheffy” skills with both European and Asian cuisine, reflecting his mixed background.

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