It’s all about EU

James Horniman, Partner, Portfolio Manager and Head of Professional Adviser Services
James Horniman, Partner and Portfolio Manager, James Hambro & Partners

James Horniman, Portfolio Manager

When Jean-Claude Juncker made his comments about Theresa May following the now infamous dinner at Downing Street, it was interpreted by many here as a strong signal to Britain that the negotiations ahead will be tough. In the light of yesterday’s victory by Macron in the French presidential election we should view it more broadly.

When the Brexit camp won the referendum to leave the EU last year there was a very real risk that Britain was the first in a line of dominoes. It was feared that with the political extremes – left and right – apparently in the ascendency and a spate of elections imminent across Europe, others would follow.

Today the EU project looks safer. Holland and now France have resisted the pressure. Juncker’s recent dig at Britain might this morning be seen as a “them v us” ploy to shore up the pro-Union votes in France and Germany. If so, it looks to have helped.

As the French headed to polling stations at the weekend a Macron victory already looked secure – we saw a market rally after Macron pulled ahead in the first ballot and markets opened to the news of his victory with a small retrenchment.

There are still parliamentary elections in France to come in June and German elections in September. A feared summer of discontent in Europe seems less likely this morning but no-one is getting over-exuberant.

Economic conditions in much of the world are getting better. Business surveys and leading indicators of economic activity continue to improve and though markets generally are at record highs they continue to climb the famed wall of worry.

Supportive monetary policy is likely to continue in Europe a while longer. Little surprise that Europe appears to be investors’ most favoured region at the moment and reported European hedge fund data suggest that investors have reduced their short positions and the average net long position has moved to the top of the five-year range.

We are neutrally positioned on equities and take the view that, other than at extremes, valuation alone is not a trigger for asset allocation changes. Some of the short-term political risks in Europe have eased, but investors have already added to positions and Europe is now a consensus overweight. We have no plans to increase exposure to Europe further at this stage.

With the valuation of many equity and bond markets leaving little buffer if fundamental factors were to deteriorate, our approach is to focus to a greater extent on individual company strategies than on regional arguments.

But let’s not end on too cautious a note. The Macron victory should be welcomed – investors can dip their croissants in the hot chocolate for a little longer.

James Horniman

Published 8 May 2017

You should not act on this content without taking professional advice. Opinions and views expressed are personal and subject to change. No representation or warranty, express or implied, is made of given by or on behalf of the Firm or its partners or any other person as to the accuracy, completeness or fairness of the information or opinions contained in this document, and no responsibility or liability is accepted for any such information or opinions.

The value of an investment and the income from it can go down as well as up and investors may not get back the amount invested. This may be partly the result of exchange rate fluctuations in investments which have an exposure to foreign currencies. Fluctuations in interest rates may affect the value of your investment. The levels of taxations and tax reliefs depend on individual circumstances and may change. You should be aware that past performance is no guarantee of future performance. 

Image: ASK Images/Alamy Stock Photo

More from this author

Should you sell your buy-to-let property?

When Capital Gains Tax (CGT) receipts broke records last year many commentators blamed it on disenchanted buy-to-let landlords cashing in their profits. Many buy-to-let investors are asking their financial advisers…

Should we be worried by Brexit deadlock?

Brexit campaigners promised us a financial nirvana if we left the EU. The Remain camp painted a Dante-esque picture of Britain sinking into economic squalor. We find ourselves somewhere in…

Why markets rollercoaster

New research in the US, just published in the journal “Chaos”, has uncovered why investing in the markets can be a rollercoaster ride. A team of researchers at the American…

The spirits of Christmas

After a successful year for technology stocks, James Horniman has clearly been thinking too much about the fundamentals of stock selection. Maybe it was reading A Christmas Carol to the children before…

The value of your investments and the income received from them can fall as well as rise. You may not get back the amount you invested.

James Hambro Menu