The first quarter of the year saw confidence in equities wane in the face of rising tension in the eastern fringes of Europe and indifferent economic news.
While our own recovery appeared to be gaining credibility, signs have been emerging from China that the world’s second largest economy might be stalling.
Growth there dipped below the forecast 7.5 per cent, though only marginally. Of more significance was a bond default and disruption in some commodity markets.
Such is the importance of China to global economy that this was sufficient to send tremors through markets, encouraging a more risk-off approach to investing.
Bond markets fared well as a consequence, with muted inflation numbers providing an added reason to favour fixed income. But at home better than expected jobless numbers led to a surge in sterling as traders factored in an early rate rise.
UK shares have yet to shrug aside the concerns that have been building over demand for raw materials and the worries that increased tension on Europe’s eastern border could exert downward pressure on economic activity.
A fall of 2.2 per cent in the FTSE 100 in the first quarter did not stack up well against a 3 per cent rise in European markets and a 1.3 per cent gain for the US S&P 500. Only Japan disappointed more, falling more than 8 per cent – hardly a vote of confidence in Abenomics.
American markets have held up surprisingly well, given some mixed results from the corporate sector. The recovery there, while sluggish, is looking increasingly sustainable, and the US is arguably an economic beneficiary from the growing isolation of Russia. It is in Russia and Ukraine that the current wild card lies, though, with little prospect of a diplomatic solution being achieved and the risk that any call for further sanctions will reveal divisions within the European Union.
These uncertainties may provide more time for sustained economic growth to reassert itself as they will weigh upon policy makers as they seek to take decisions in such areas as monetary policy. It seems to be events at the macro level that will influence investment decision taking for the foreseeable future, which in turn is likely to discourage excessive risk taking.
But it would be wrong to ignore some of the events taking place that are unlikely to appear on any international radar screen. Prominent amongst these is the seemingly unstoppable surge in the price of residential property in this country.
On average house prices rose by some 9 per cent in the past twelve months – a figure distorted by a robust performance in London. Quite how these measures are calculated escapes me, but an increase of nearly one fifth in the value of the average London home must be denying first time buyers the opportunity to clamber aboard the property ladder.
Meanwhile, house builders are delivering record profits and the Government is doing all it can to encourage the building of new homes, even to the extent of paying local authorities for allowing construction to take place. Add to this an expected surge in buy-to-let as a result of the pension reforms, and you have all the makings of a bubble.
If it is hard to determine whether equities represent good value right now, then making a call on property might turn out to be easier.
Brian Tora is an associate with investment managers JM Finn & Co