The Investor 90 Asia

29 / 44

THE INVESTOR CENTRE
T he quarter was characterised by
everything pre- and post-Brexit.
At the time of writing the market is
reacting negatively to the perceived
implications of Brexit: a sustained
period of ultra-lowUK interest rates,
the possibility of a recession and a
prolonged period of
these the last is certain; the others are
worst-case forecasts.
In turn, this has sharply divided
performance in the market,with
international/dollar earners showing
resilience and the weight of selling
pushing domestically-exposed stocks
down think this disparity is
overdone and are switching from
expensive defensives and international
stocks into companies that have fallen
yet should weather such conditions. In
time themarket will focus onwhere risk
is discounted versus areas wheremoney
has unthinkingly own:pharmaceuticals
will be in the eye of the US electoral
uncertainty and European stocks will
re ect on the sustainability of the
eurozone. By contrast the UKwill
have re-priced; and while no one likes
an investment opportunity where the
good news is less bad news, it would
seem that would be a basis on which
the market recovers its poise.
Volatility continued in Q2, spurred
in part by Brexit concerns and
ongoing speculation regarding the
direction of global monetary policy.
Developed Europe and emerging
markets trailed while the US
outperformed global markets.
Among our top contributors were
Medtronic and the Bank of NewYork
Mellon.Medtronic continues
delivering good revenue growth and
cost savings from the Covidien
acquisition and reported its lowest
expenses in three years.
The largest detractors from
performance were Baidu and Tesco.
Baidu’s share price has been pressured
by the Chinese government’s
investigation of allegations of
misleading healthcare-related adverts.
Baidu worked quickly to resolve the
matter and we don’t expect it to
impinge on long-term results.Tesco
still faces strong competition from
discounters, and investments in lower
prices should lower the pace of margin
expansion. Based on our estimation of
normalised pro tability, the shares
remain attractively valued.
We exited our positions inApplied
Materials as it hit our estimate of
intrinsic value, and Chipotle.
T he second quarter was dominated
by theEUreferendum.Although
the opinion polls were‘too close to
call’,theLeave decision came as a shock
and sterling and all equity markets fell
sharply. It is too soon to say how events
will unfold but markets don’t like
uncertainty; and the Brexit vote is
likely to reinforce concerns about the
slow global growth background with
interest rates‘lower for longer’.
We made no signi cant changes to
equity weightings or sector preferences
during the did add
modestly to medium-dated UK gilts.
We have been underweight in bonds for
some time; and although government
bond yields look unattractive, the
insurance policy nature of such holdings
warranted an increased holding.
The focus of attention is likely to
shift back to the timetable for higher
US rates, the US presidential contest
and China. European equities are also
likely to be a ected by political
uncertainty. Equities may be more
volatile in the short term but should
be supported by low bond yields;while
UK equities,with their signi cant
percentage of overseas earnings,
should bene t fromsterling’sweakness.
ARTEMIS
UK & International Income
Falling prices provide an opportunity
to move away from defensive stocks
ARTISAN PARTNERS
Global Managed
Global
Medtronic, Bank of New York Mellon
deliver strong returns for portfolio
AXA INVESTMENT
MANAGERS
AXA Framlington Managed
Balanced Managed
Medium-dated UK gilts offer an
insurance policy during market turmoil
UKmarket looks set
for prolongedperiod
of uncertainty
Brexit and global
monetarypolicycreate
volatile conditions
Too soon topredict
long-term implications
of Brexit vote
Dan O’Keefe, David Samra and
James Hamel Richard Peirson Adrian Frost
THE INVESTOR | 29