Investment Outlook – First Quarter of 2018

After peaking in January, equity markets fell and became more volatile in the first quarter of 2018. The fall in markets can be attributed to three main areas of concern; the tech industry, trade protectionism, and slower global growth.

– The technology sector drove the equity market sell-off, as concerns about data privacy triggered increased regulatory risk globally. This weighed particularly on internet related companies such as Facebook, Amazon & Google.
– In the US, the White House announced tariffs on Chinese imported goods. So far the economic impact of the tariffs is expected to be relatively muted, but escalation could raise more significant concerns about global trade and growth. These developments added to negative sentiment in equity markets, and the US dollar continued to weaken.
– The major economies of the world continue to grow healthily, albeit at a slower rate, and the US Federal Reserve raised interest rates, suggesting confidence in the ability of the economy to ‘normalise’ after record low interest rates over the last 10 years.

Due to our investment process, we focus far more on companies than on macroeconomics. Specifically, we focus our equity investments on companies which are multi-national, who themselves find areas of growth across the globe. We prefer companies termed ‘high quality’ which means strong balance sheets, low levels of leverage, and strong cash flow. While we expect further jitters in equity markets, in the long run, the financial system will continue to reward companies that consistently generate earnings, and in that context, volatility often leads to opportunity.

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