September 11, 2018

Pegler’s market report – 11.09.18: The US leading the way as emerging markets enter bear market

by David Pegler

in Insights Press Releases

As published in the Brighton Argus (11.09.18) Business section under the title Pegler’s Market Report:

The US leading the way as emerging markets enter bear market

The emerging markets rout and fears of an escalating trade war has not helped UK and European markets over recent days.

Emerging market stocks have fallen steadily for several days, hit by worries over global growth prospects, the strength of the US dollar, and the various trade disputes being driven by the White House this year. Some commentators calculated that emerging markets are now officially in a bear market, defined as falling 20pc from their recent high.

With Argentina signing up for an IMF bailout, Turkey fighting a currency crisis, and Brazil gripped by a corruption scandal, there is plenty for investors to worry about.

Meanwhile, the US seems to go from strength to strength. US companies reported a pick-up in new orders (including exports) and overall activity, suggesting the US economy remains in good shape. Initial claims for jobless benefits dropped by 10,000 last week to 203,000, the smallest number since December 1969.

Amazon has become the second company to be valued by Wall Street at $1 trillion, a matter of weeks after Apple reached the milestone first. Although President Trump has apparently threatened a wider investigation into Amazon’s dominance in online retail. The company accounts for 49 cents out of every e-commerce dollar spent in the United States and has been blamed for the failure of once powerful retailers such as Toys R Us.

It has been a volatile time for UK equities weighed by an appreciating pound, a falling oil price and trade worries. On the corporate front Barratt Developments was one of the brighter news stories after a 9.2pc increase in pre-tax profits.

Barratt Developments built 17,579 homes in the year, the highest number of completions in a decade. Over the medium term it is targeting further volume growth of 3.0pc to 5.0pc a year. The group said that it has capacity to grow to 20,000 annual completions under the current operational structure. The housebuilder also confirmed that ordinary dividend cover will be maintained at 2.5 times, with special cash payments when market conditions allow. The group declared a final dividend of 17.9p a share, plus a special dividend of 17.3p a share, which will be paid in November. That will bring total payouts for the full year to 43.8p a share, up 5.0pc from a year earlier. In the future, the group has proposed that returns will be a combination of cash and share buybacks, giving itself more flexibility. This could be a precautionary move should market conditions change. Some 36.0pc of Barratt’s sales last year were supported by the Help-to-Buy scheme, so future government decisions about the continuation of the project could be crucial.

There is a Bank of England interest rate decision expected on Thursday. The Monetary Policy Committee voted unanimously to raise the Bank Rate to 0.75% in August, so a rate rise this month is thought to be unlikely. Investors will also get new data on US inflation – core consumer prices in the US rose at their quickest pace in a decade in July, strengthening the case for the Federal Reserve to keep raising interest rates.

By David Pegler, Brighton Capital Management