Two-speed economy continues: Investment update August 2015

Shaun Port

read 3 min

For the month of July, though the global outlook is slowly improving, developed and emerging markets offer two completely different stories.

Stock markets in Europe and other developed markets bounced back a bit in July. Bonds eeked out some small gains. On the other hand, it was a disaster for emerging markets – stocks fell by 7% – and commodities were down by 10%.

How have Nutmeg portfolios been performing?

Nutmeg portfolios gained by up to 2% for the highest risk and about 1% for the medium risk, starting to claw back some of the losses we have seen over the past few months. In the first few days of August, portfolios have so far made small gains, up to about 0.5%.

What’s driving this uncertainty in markets?

It’s mainly down to something we have been talking about for a while: the global recovery is operating at two speeds in developed versus emerging market economies.

Although we may not be out of the woods yet, the Greek crisis has subsided, which has helped the markets to stabilise.

But China’s stock market bubble is bursting and emerging market economies are very weak, driving down commodity prices like oil currencies and emerging market stock markets.

Update on the situation in Greece

The Syriza government gave into pressure from EU creditors and rushed through new laws to get cash flowing again. The banks re-opened this week, but they are still discussing the details of a third bailout.

The UK economy, inflation and interest rates

On 6th August, the Bank of England (BoE) announced its latest interest rate decision. The base rate was kept frozen at the current low rate of 0.5%.

The UK economy is doing quite well, so the BoE is more confident to take away some of the emergency measures we’ve had in place for the past six years.

Because inflation is so low, actually it’s at zero at the moment, the Bank can take its time and doesn’t need to raise interest rates very far.

So when a rate hike does eventually come, which may not be until next year, we are not worried about the impact on financial markets. Similarly, the US is likely to start raising rates in September or December this year.

What’s the outlook for the next year or so?

Even at these levels, we’re not tempted to buy emerging markets, yet.

Developed markets are likely to do much better in the next six months, particularly Europe and Japan, but also we think the US market is set to push ahead and break new highs.

Changes to Nutmeg portfolios this month

We made some small changes this month. We don’t hold a lot of emerging market stocks, but we do hold a small amount (up to 3% in highest risk portfolios) in Indonesia. We believe that Indonesia is one of the only true emerging markets that offers promising growth. It outperformed other emerging markets last month, even though the Indonesian stock market lost 2%. We’ve used this opportunity to cut the holding a bit.

We’ve also rebalanced all our portfolios. We still hold a lot of European stocks and about 10% more Japanese stocks than we would usually hold.

About this update: This update was filmed in August 2015 and covers figures for the full month of July unless otherwise stated. Data sources: Bloomberg and Macrobond.

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.


Shaun Port
Shaun is the chief investment officer at Nutmeg. He has over 25 years’ experience developing and implementing investment strategies for clients ranging from central banks to pension schemes to charities and private individuals. Shaun holds a degree in Mathematical Economics from the University of Birmingham and is a Chartered Alternative Investment Analyst. He can be found tweeting @ShaunPort.

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