ATG News 23/10/2017

The Gibraltar Chronicle Friday had an article under its “Money Matters” headlined “Leading investment strategist is upbeat on future global economic growth and  strengthening financial markets.” a talk delivered by Alan Mudie Head of Investment Strategy at Kleinwort Hambros.

According to the article the companies bi-annual assessments of global and individual economies have become significant dates in Gibraltars calendar for such things.

The article says that given the pre-Brexit doom and gloom by many Mudie is quite optimistic about global prospects and growth in the longer term, except in the UK? Which seems at odds because if the UK continues as is likely as a financial hub including gold exporting neither of which should be seriously effected then growth for UK should be equal to the rest of the world.

The article continued:  “A quote from a financial titan Warren Buffet set the tone for Mudie’s assessment of the big picture. “Games are won by players on the playing field not by those whose eyes are on the scoreboard.” Although global trade had only recently recovered and was growing at only 2% and there was a need for progressive capital expenditure the “missing links” were coming together Mudie argued. “Nevertheless, we expect a temporary hit to growth from the impact of the hurricane season” he added. With stronger manufacturing activity, robust private consumption and rising capital expenditures the global economy was regaining traction. It had recovered from the negativity of 2015 and early 2016 and growth continued to gather pace-mainly driven by private demand.

Although central banks were struggling to drive inflation higher “we remain confident that inflation will eventually pick up as output gaps are beginning to close and unemployment is falling.”  Business conditions were better than they had been since before the 2008 crash and in the Eurozone – where GDP was likely to rise by more than 2% this year the economy continued to register stronger than expected growth prompting calls for the European Central bank to scale back asset purchases. However in spite of the rise in confidence in business and among households, there were still concerns about incomes and pensions. He had not expected the Brexit negations to go as badly as they had and “last week’s discussions were a disaster.” Six months into the process there had been no progress. The underlying tone of the talks raised growing concern and he was “not very optimistic about the outcome”

Elsewhere in emerging markets – particularly China with a 7% growth forecast – were helping pull the global ecology upwards. “China is the biggest story in the global economy,” he added. “Globally there was a shift in emphasis of the world’s central banks with inflation ‘keeping up’ except in Japan and strengthening the case for increases in interest rates. He expected interest rates to rise by 2019 – again veering  from the perceived wisdom of the pundits who are pencilling in the first rise in interest rates for a decade in November (and the pundits maybe right). This week Bank of England Governor Mark Carney told the Treasury Select Committee that it might be appropriate to raise interest rates because Brexit fuelled inflation, caused by the weak pound was set to continue to rise. “Having made progress over the last 14 months the economy, having created almost 400,000 jobs, having used up most spare capacity having seen some early evidence of building domestic pressures, the judgement of the majority of the Monetary Policy Committee is that some rise in interest rate in the coming months may be appropriate in order to have that sustainability,” Carney told the Treasury Committee. Inflation was expected to peak above 3% this month or next, meaning it was ‘more likely than not’ he would have to write a letter to the Chancellor explaining why inflation is more than one percent above target.

Back on the Sunborn floating hotel, Mudie took a positive stance on global equities. The Eurozone and Japan were best positioned to benefit from economic recovery. “US equities have little to offer – their valuations are already too stretched” he continued. “Brexit talks leave us increasingly cautious on UK equities while we stay neutral on Swiss equities as they will benefit less than others from the global recovery.” Of oil and gold – the two commodities frequently to the fore in investors’ minds – Mudie argues that as a result of the rise in US exploitation of shale gas, oil prices should remain around $55 per barrel this year. The gold price which he believed was slightly overvalued at present was unlikely to increase over the coming months as political risks recede. Demand will be slow to recover.

Finally; and this bears into recent announcements by our Government in Gibraltar. When asked a question on crypto currencies. He apparently “put the seemingly obsessive preoccupation with crypto-currencies into perspective saying. “Crypto-currencies are not investments, I would rank them as speculations,” he warned. “We wouldn’t consider them as part of our asset investments. They have no intrinsic value- their value lies in what people pay for them…Who knows what the madness of crowds will be.”

The full repercussions of crypto currencies are yet to be played out, the politics of a currency that in effect negates the need for banks yet has Governments already scrambling for regulation in order to try and maintain some sense of control is an anathema to the founder or should I say developer Sartoshi Nakamoto. Acquarius reserve judgment and merely report facts but ponder this. Just last week a house in London went on the market for around ฿5800 (£17M). The owner has confirmed they will only accept payment in bitcoins. That’s an investment in anyones book.