With an improving economic outlook for developing economies and global trade, we’ve recently* increased our portfolios’ exposure to emerging market equities, while reducing our holdings in the US.
Our portfolios have been quite light in emerging market equities for several years now, mainly due to global exporting prospects dipping after the global financial crisis of 2007/08, and a general slowdown of developing countries’ economies.
But we’re starting to see early signs of global trade picking up after a period of ‘post-financial crisis healing’. Emerging market economies are also stabilising, and it’s looking likely that their growth cycles will begin to synchronise with those of the US, UK and Japan during 2017.
Trump and global trade
There’s quite a lot of news in the press about the negative impact of Trump and his policies on global trade.
However, we don’t expect trade barriers to be erected — rather that the US continues to push for a better ‘deal’ for itself. Whatever marginal negative effect this may have on exporters to the US, we believe that the general improvement in global economic strength more than compensates for this.
Changes to Nutmeg portfolios
Developing economies doing well is good news for risky assets, so we’ve moved to a normal level of exposure to emerging market assets in our medium to high-risk fully managed portfolios.
To do so, we took some profits from our holdings in US small companies and US ‘value’ stocks: both have had a good run since the election.
We’ve also slightly diversified our currency exposure away from US dollars: we expect emerging market currencies to do better against the dollar as global growth picks up.
What next?
As always, we manage Nutmeg customer portfolios to ensure a good balance between potential returns and reasonable amounts of risk.
Watch our February 2017 investor update to find out more about what’s been happening in the markets since the start of the year and what’s coming up that we’re keeping an eye on.
*Changes to portfolios made 9th February 2017
Risk warning: As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past or future performance indicators are not a reliable indicator of future performance.
Sources: Bloomberg and Macrobond
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Brad Holland
Brad is Nutmeg’s director of investment strategy. A veteran – 28 years at last count – in financial markets, he started his career as a professional economist at the Australian Reserve Bank. He now specialises in economic and financial market strategy within investment management. Brad studied post-graduate quantitative economics at the University of Queensland, Australia. Despite living in London for 20 years now as a naturalised British citizen, he’s still not quite ready to support England-v-Wallabies.Other posts by Brad Holland