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LD expects positive growth in all major economies and regions, resulting in overall global growth of around 3.7 per cent in 2018. Growth in Europe is expected to be somewhat lower than in the US and considerably lower than in emerging markets. Despite the fundamentally sound macroeconomic picture, the stock market was hit by turbulence in February this year following a very long period of steady rises in share prices and generally calm financial markets. The stock market has since recovered somewhat, but has been characterised by some significant fluctuations, which are expected to continue for the rest of the year.
“We are seeing stock markets where even the slightest signals are given great significance and can cause turmoil. The financial markets have reacted in particular to concerns about inflation and fears of a global trade war following strong rhetoric from US President Donald Trump,” says Charlotte Mark, Chief Financial Officer at LD.
A more cautious approach to the risk profile
The economies are thought to be close to peaking, and stock market valuations are so high that even minor disappointments or negative news could trigger significant price corrections. At the same time, the US Federal Reserve has begun the process of gradually tightening its currently very accommodative monetary policy. The European Central Bank is expected to follow suit. Both interest rate and equity markets are expected to be highly sensitive to this process.
“The US Federal Reserve’s move away from an accommodative monetary policy is a turning point that could cause significant uncertainty for investors in equities and credit bonds. For this reason, we have adopted a more cautious approach to the risk profile of LD’s investment portfolio,” explains Charlotte Mark.
At the turn of the year, LD slightly reduced the risk exposure in LD Discretionary due to rising markets, concerns about high valuations and expectations of rising interest rates.
Strong returns in recent years
The financial turmoil at the start of 2018 has led to losses in LD’s portfolios, but this development should be viewed in the context of the positive results achieved over a longer period. Looking at performance over the last 12 months, the results are generally positive, and in 2017 good returns were achieved in all portfolios, with the exception of Maj Invest Kontra, which has a very specific investment mandate and is designed to act as a counterbalance during periods of financial turmoil.
