New UK PM Boris Johnson’s pledge to go the extra 1000 miles to secure a Brexit deal with the European Union has echoes of that famous song by the Proclaimers, “I’m going to be” from their 1988 album “Sunshine in Leith” with its signature line “I can walk 500 miles and I can walk 500 more.”

Songwriters Charlie and Craig Reid were reportedly big supporters of Scottish independence and presumably were cheering Scottish First Minister Nicola Sturgeon who in her first meeting with Boris Johnson yesterday reiterated her commitment to Indy2 (then maybe Indy3 or 4 if Indy2 doesn’t work).

Proclaimers

Back in London the new PM has wasted no time in putting his stamp on government.  Larry the cat was one of the few spared the cull as Boris took the axe to the May cabinet to mould a new government in his image, taking to his task with gusto and sacking 17 former ministers and replacing them with Brexiteers in a “night of the blonde knives”,  as the UK red tops called it.

Make no mistake this was a man in a hurry with 99 days to leave the EU and with a black ink commitment to leave the EU with or without a deal.

Britain is going back to its roots and despite best efforts by Whitehall and much of the liberal opinion formers and “influencers” to keep us in the EU, in the end the conclusion that it’s a club run by the French and the Germans in which the Brits have very little say has won out and the 52/48 referendum vote by the English in favour of leaving the EU is being upheld.

As the third largest economy in the world by assets (Britain has a staggering $US11 trillion of overseas assets (Source: Office for National Statistics)) the fifth largest economy by GDP and with the fourth largest navy in the world, Britain has decided its future is best pledged towards a rest of the world growing at 3% a year rather than a European one not growing at all…

Many decry the risks of a hard-line Brexit government including the controversial Brexiteer adviser Dominic Cummings (played by Benedict Cumberbatch in the recent film) and the new UK PM’s distinct shift to heaping blame in the EU now makes this a nationalist agenda,  ie the UK versus Europe and there will be little room for compromise here with all the key cabinet posts going to the Brexiteers.

However once the interminable Brexit saga is over later this year the country will have to knuckle down and address the various challenges ahead.

BoJo economics appears to consist primarily of spending loads of the holding and folding on new policemen, doctors and nurses, roads and ships for the Navy with a Trumpian like disregard for fiscal rigour and associated huge budget deficit on the cards-still, if markets are so determined to allow the UK government to borrow for 10 years at less than 1% who’s complaining?

Markets more widely continue to be underpinned by central banks’ easy monetary policies -corporate bonds and US blue chip equities are having a ball with the Nasdaq, S&P and several other indices making new all-time highs.

However stress signals are mounting and the profit warning from railroad giant CSX (Source: MarketWatch) along with mixed results from bellwethers a degree of caution is warranted in our view.

We have become more guarded in our asset allocation for the following reasons:

  • Financial markets have had a strong run in 2019 and look overbought on a technical basis
  • Bond markets offer zero, or negative returns, for the first time in history and we see this as a sign of structural weakness, not strength
  • Equities have been buoyed by the bubble in bonds and the central bank ‘put’ option but the CAPE ratio (cyclically adjusted price/earnings) is at historic highs
  • A few global stock market indices are making new highs, such as the S&P 500 and Nasdaq but the majority of both developed and developing market indices are well off their peaks. We see this negative divergence as a cause for concern.

This has meant taking profits in the large private equity and corporate bond positions we hold particularly high yield bonds, the strongly performing utilities and China A shares as well as the equity income holdings in Asia that have down so well this year.

We have added to precious metals as they have dipped and we remain big fans of UK yield oversold as we believe it is. Vodafone’s 10% share price rally last week on news of it announcing it was to divest its telecom masts’ business was a good example of how sharply these high yielders have the potential to bounce back on any number of catalysts.
We continue to perform solidly in South River portfolios with absolute returns of between 1% and 3% for the Cautious (cash+) funds year to date and 8% for the Diversified and Dynamic multi asset funds.  Over three years Cautious funds are showing gains of between 1% and 4% and the Dynamic fund is up 20%.

Overall we continue to run a conservative and diversified investment strategy with an emphasis on sustainable yield in equities and bonds and an overweight in quality liquid high yielding shares and bonds and an emphasis on uncorrelated assets which we believe holds us in good stead in what may become a somewhat more volatile market background.

Research wise there was one interesting snippet this week, when we caught up with UK student accommodation leader UNITE plc.  The acquisition of rival LIBERTY LIVING for £2.2bn including debt makes them clear market leader…student accommodation is a growth market with student numbers at record high and supply crimped…

http://www.unite-group.co.uk/node/405

https://investing.thisismoney.co.uk/quote/UTG

And finally, at such a stressful time for her majesty’s subjects, spare a thought for all those Brits who thought having paid a princely sum for a calm, peaceful cruise to see the Norwegian fjords and ended up in the middle of a mass brawl on P&O’s flagship cruise ship “Britannia”

https://www.bbc.co.uk/news/uk-49137520

 

 

The information on this site is not available for private investors and is restricted to Professional Investors.

South River Asset Management Ltd is registered in England and Wales (Number 04195976). South River Asset Management Ltd is authorised and regulated by the Financial Conduct Authority in the UK, with its registered office at 1 King Street, London, EC2V 8AU. The information on this website is directed only to eligible professional investors. Please satisfy yourself that you are eligible to make such investments before accessing this information. You must read the following information before proceeding, as it enables the legal and regulatory restrictions which apply to both the information contained and investment products referred to within this website. To enter this website your browser must have cookies enabled or you will not be aware of important regulatory information. The information on this website constitutes a financial promotion and has been issued and approved by South River Asset Management Ltd for the purpose of Section 21 of the Financial Services and Markets Act 2000  and does not, in any way, constitute investment legal or taxation advice. South River Asset Management Ltd’s details are set out in the FCA register and our FRN number is 197097. You hereby agree that any dispute arising from your use of this website or the information it contains, will be subject to the exclusive jurisdiction of the English Courts. This website is confidential, and no part of it may be reproduced, distributed or transmitted without the prior written permission of South River Asset Management Ltd. Investments may go up or down in value and you may lose some or all of the amount invested. Past performance is not necessarily a guide for the future. Returns from the structured products are at risk in the event of any of the institutions who provide securities for these products default on their financial obligations. Any decision to invest should be based on the information contained in the relevant term sheet or prospectus (and any supplements thereto) of the relevant product which includes information on certain risks associated with an investment.

This website does not disclose all the risks and other significant issues related to an investment in the securities. Prior to transacting potential investors should ensure that they fully understand the terms of the securities and any applicable risks. Neither this website nor any documents contained within it constitutes an offer or solicitation to sell in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities law of that jurisdiction. The material contained within is purely for information purposes and its accuracy cannot be guaranteed. By accessing this website you represent that you are permitted by the laws of your jurisdiction of residence to access this site and the information contained herein. This website is not intended for residents of the United States as we are not authorised to sell our products and services in the USA.

ACCEPT