Monthly review end-October 2019

  • 22 November 2019
  • 5 minutes

UK lags global share price rises

Shares trading on many of the world’s equity markets rose in value in October. Notably, though, those in the UK did not. Political twists and turns persisted during the month. Eventually, the UK parliament approved Prime Minister Boris Johnson’s Withdrawal Agreement in principle.

But the UK did not leave the European Union (EU) on 31 October as planned. Instead, EU leaders agreed that the UK could postpone Brexit until January and Mr Johnson called for a general election to be held on 12 December. Renewed hopes that a no-deal Brexit and the accompanying uncertainty could be avoided was welcomed by investors. This sent the pound up but that ate into the profits of major exporters. Two-thirds of the revenues generated by FTSE 100 companies are from overseas, so the index dropped by 1.9% over the month.

In the US, rising hopes of a trade deal with China combined with better-than-expected profits from the latest round of corporate results lifted share prices. Meanwhile, a decision by the Federal Reserve (Fed, equivalent to the Bank of England) to cut US interest rates also boosted investor sentiment. When the cost of borrowing falls, individuals and businesses tend to have more money available to spend or invest, which can lift company profits and share prices. The benchmark S&P 500 Index rose 2.2% over the month. European share prices also increased. The FTSE World Europe (ex UK) Index gained 1.3% in October.

Bonds vary by region The demand for and price of lower-risk rated bonds across Europe fell as investors moved money into shares where they hoped to capture greater gains in value. The increased prospects of a Brexit deal helped to raise optimism in higher-risk rated investments, but that wasn’t the only factor.

In the US, government bond prices fell for much of the month before staging a recovery. This happened after the Fed cut interest rates which reduces the returns on savings deposits that pay interest based on the general, underlying rate of interest for the country. By contrast, the returns on bonds tend to be fixed regardless of any changes in interest rates. So when interest rates go down or fail to rise, the attractiveness of bonds tends to increase. The increased prospects of a Brexit deal helped to raise optimism in higher-risk rated investments

Property weakness persists

The weak trend in UK commercial property continued. The move for investors to reduce risk remained a key theme in the market. Investors are looking for income streams that they consider to be more reliable, such as those offered by buildings that have prime locations and that carry long lease agreements.

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Forecasts of future performance are not a reliable guide to actual results in the future; neither is past performance a reliable indicator of future results. The value of investments, and the income from them, may fall as well as rise and cannot be guaranteed and the investor might not get back their initial investment,

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