Monthly Commentary – September

Despite conflict and geopolitical tensions heightening fears of a global recession, the world’s equity markets rose modestly in September.

The trade dispute between the US and China escalated early in the month, with the imposition of US tariffs on Chinese imports. China responded by lodging a World Trade Organisation (WTO) complaint against the US, though some hopeful signs emerged later as both countries partially lifted tariffs.

Meanwhile, trade tensions between the US and Europe increased as the WTO ruled that the US could impose levies on goods from EU nations because of the bloc’s illegal subsidies for Airbus.

In the Middle East, a drone attack on a Saudi Arabian oil facility caused a 19% spike in the price of crude. It later fell back as progress was made in restoring the lost output and US oil stockpiles were reported to have risen.

The US Federal Reserve cut interest rates again, but indicated that this would be its last cut for now – prompting a furious response from President Trump. As German manufacturing data slumped to its worst level in almost seven years, the European Central Bank reduced its benchmark interest rate to 0.5% and announced that it would resume quantitative easing in November.

In sterling terms, the US market was the month’s poorest performer. This was partially due to a stronger pound, but also reflected growing political uncertainty as the Democrats began formal impeachment proceedings against President Trump.

The strongest market was Japan, on reduced concerns over its economic health. Consumer purchases increased only slightly ahead of an increase in sales tax which took effect at the end of the month, suggesting that no disastrous slump in consumer spending will follow. The last time the tax rose, the subsequent fall-off led to a recession.

Despite a tumultuous political month, the UK market was also strong. The Supreme Court ruled that Boris Johnson’s suspension of Parliament on 9 September was unlawful, and MPs returned to Westminster at the end of the month. Earlier, Parliament passed a law designed to avert a no-deal Brexit, prompting a rally in the pound. There was also reassurance from the Bank of England’s Governor, Mark Carney, who said that greater preparation meant that the bank’s worst case Brexit scenarios were now less severe.

A UK holding, BT, was one of our best performers in September. Its shares have long been out of favour, but it recently received a boost from the government’s announcement of a £5 billion fund to support the deployment of rural fibre networks. Boris Johnson’s plan to upgrade the nation’s network could also lead to an easing of mobile infrastructure regulations. Meanwhile, BT has a turnaround strategy in place, with a focus on cutting costs and investing in network leadership. Philip Jansen, the new CEO, has added fresh impetus to this plan. We see BT an interesting contrarian opportunity given the scope for operating recovery and an improving environment – we believe this potential is not yet reflected in the share price.

Please remember that past performance may not be repeated and is not a guide for future performance. The value of shares and the income from them can go down as well as up as a result of market and currency fluctuations. You may not get back the amount you invest.

Please note that SIT Savings Ltd is not authorised to provide advice to individual investors and nothing in this article should be considered to be or relied upon as constituting investment advice. If you are unsure about the suitability of an investment, you should contact your financial advisor.