Friday, 25th May 2018
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John Smiles

Qualified Financial Advisor

Year-end worries for investors

November/December can see some of the biggest moves in markets and experts have some issues to be cautious about.

The prospect of 'no-deal' Brexit is probably the biggest worry. We are at the halfway point between the Brexit vote and the nominated date that the UK leaves the EU and if politicians can't reach a deal then the pound could weaken further putting more pressure on Irish exporters.

Brexit is not a problem for FTSE 100 companies as they get a large proportion of their earnings from overseas, but smaller and medium-sized businesses which tend to be more domestically-focused will be impacted by a 'no-deal' exit. Much of the FTSE's strength over the past year has come from the boost to firms' overseas profits due to a weak pound.

The average UK equity fund has around 42% of its assets exposed to small and mid-cap stocks, so investors could see performance affected if a 'no- deal' Brexit transpires.

The UK housing market is a source of worry. A recent survey by the Royal Institution of Chartered Surveyors (RICS) found that while house prices are currently stable, estate agents are not so positive about the outlook for London in particular over the coming months. A fall in property prices would hurt funds invested in bricks and mortar and likely impact other sectors too because if prices fall that could hit consumer confidence and consumer spending, which will also affect domestically focused stocks.

Chinese Debt worries some investors who are concerned at the alarming pace that debt is rising in China. In any other sector of the global economy in history, a similar rise has ended badly, but a correction in the Chinese stock market doesn't seem likely at the moment because the closed nature of the market provides some protection. Much Chinese debts consist of loans from the government to controlled entities, where the state has more control over how the debt is managed.

Recent rate rises in the US and UK suggests Central Banks might get their strategy wrong by increasing interest rates too soon and precipitating a recession.

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