So this week we had the news that will come as no surprise to everyone. The UK is officially now in recession (more on that in a moment). But how did the UK and other world stock markets re-act to a week of dire data? Most of them had a very positive week!
So figures released this week from the Office for National Statistics showed that the UK economy has suffered its first recession in 11 years with GDP falling 20.4% over April to June. Add this to the 2.2% drop suffered in the first quarter then we have suffered two consecutive quarters of negative growth which is what is classed as a technical recession.
We all knew it was coming as this is the only outcome when you shut down the economy during a lockdown and why the UK government are so keen to avoid a second national lockdown.
What’s more disappointing is that apart from Spain, the UK’s fall is the worst of the world’s developed countries. About twice the size of falls in the US and Germany.
So why did the UK stock market go up 4.26% this week?
Well for a start, the UK stock market includes companies that trade all across the globe so are not reliant solely on the UK.
Also stock markets are forward looking. They will predict future performance. The reason we had the stock market crash in March was because markets were anticipating the types of economic figures released this week.
Since then, helped by lots of government and central bank support the markets are now looking ahead and are positive about the recovery.
Investors should not be deterred from their long term investment strategies and we can’t be complacent. Portfolios like our own RTS Investment Strategy are globally diversified so are not reliant on the performance of one individual country or even global business as a whole. There are many different types of assets to invest in that will deliver a return in different economic environments. This includes cash, fixed interest, commodities like gold and property.
Speaking of property. The UK’s financial regulator, the FCA announced this week it was consulting on investment property funds.
Many of you will hold these types of funds in your portfolio and most of the open ended funds are suspended. The reason for this is because these funds hold physical property like office buildings and retail units. When Covid struck it became impossible for these funds to value their assets as who knows what sort of demand there is going to be for buildings like offices going forward.
The FCA do not like the fact funds are suspended as it means investors can’t get their money out. They are proposing to introduce notice periods on these types of funds and possibly even ban them from ISAs!
Our investment team are currently looking at alternative fund structures to hold certain types of property (like distribution warehouses and supermarkets) that will avoid all these issues and still provide that diversification that property brings to a portfolio. Look out for our article on this subject coming in the next week or so.
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Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.