19 Jun 2019
On the 21st May and for the 3rd year running, I attended Schroders’ Manchester conference at the Lowry Hotel. The setting was nothing short of resplendent and was covered in branding from floor to ceiling. The conference started with an overview of where we are in the cycle by Charles Prideaux and, for once, the global outlook wasn’t all doom and gloom. US export data has started to tick up, easy credit has begun in China and the Eurozone growth is expected to be at 1.6%.
Even though none of this signals a massive surge in global growth it does show that the world is stabilizing and that, in a low inflation environment, the world doesn’t look too bad. The caveat to the positive data is that, with the possibility of trade wars escalating and the unknown effects of quantitative tightening, markets are likely to remain volatile.
Next on the agenda was an update on the outlook for the UK economy from Alex Breese. As with all current UK presentations there was significant emphasis on the valuation gap between UK equities and global equities. Allocation to UK equities by overseas investors is now at a 40-year low. The gap between growth and value hasn’t been this wide since the tech bubble. However, all these facts have been true for the last three years and each year the gap still seems to widen further. The question for investors is when these trends start to turn and what the catalyst for this might be.
Andrew Rose from the Schroder Tokyo fund has been on stage for the last 12 conferences. This will be his last however, as he retires next month. Instead of the usual deep dive into the outlook for the Japanese economy and the most attractive sectors, he reflected on his career and how things have changed in Japan. He started by saying that, a few years into his career in 1989, the Nikkei 225 reached an all time high of 38,957 after which it fell sharply. He predicted that the market would rebound and that he would see the market surpass this point later in his career. Thirty years on this still hasn’t happened!
Over the last thirty years there have been mass reforms in Japan. Cross share holdings have decreased, a corporate governance code has been introduced and the number of women in the workplace has increased dramatically. Going forward, Andrew believes that the future looks bright for Japan. Valuations are attractive, the political outlook is strong (especially compared to the rest of the world) and inflation is starting to come through.
There were several breakout sessions throughout the day covering different equity regions. The main theme for these sessions was the valuation gap between growth and value across all equity markets. They believe that there is a risk of growth stocks derating sharply if the macro environment changes and that there is a strong possibility of value outperforming over time.
As always it was an extremely interesting and informative day packed with points to go away and have a serious think about…