Interesting times ahead

Recent data shows the global economy faltered in the second quarter of 2019. Policymakers have begun to respond, with the US Federal Reserve (Fed) cutting rates for the first time in a decade, but with the US-China trade dispute rumbling on and another Brexit deadline looming, fears of a global recession have increased.

Economic growth

Second-quarter gross domestic product (GDP) statistics have revealed a significant weakening in growth across most major economies. In the US, for example, GDP rose at an annualised rate of 2.1%, significantly below the 3.1% recorded in the first quarter, while China’s annualised growth rate of 6.2% was the country’s weakest since records began in 1992.

Fed reduces rates

With fears of a potential downturn growing, the Fed cut its key benchmark interest rate by a quarter of a percentage point on 31 July, the first reduction in US borrowing costs since 2008. It also signalled a readiness to provide further support if the economic outlook deteriorated further.

Recessionary fears

Global growth momentum has clearly waned in recent months and the balance of risks to the world economy appear skewed to the downside. The US-China trade war continues to cast a shadow over growth prospects, while the increased likelihood of a disorderly Brexit is also causing consternation.

Focus on what really matters

Many investors are getting used to a variety of political, financial and economic factors and learning to look through the ‘noise’ to focus on what really matters. Portfolio diversity holds the key to approaching your investments and managing risk. Having different assets in your portfolio from different sectors and global regions is helpful in achieving this.
It is important to think about longer-term timescales instead of focusing too intently on short-term events and market fluctuations.

What is clear is that financial advice is essential to help position your portfolio in line with your objectives and attitude to risk. Remember to get in touch if you have any changes in your personal circumstances which may affect your objectives, risk and capacity for loss.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

It is important to take professional advice before making any decision relating to your personal finances. Information within this newsletter is based on our current understanding of taxation and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK; please ask for details. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. If you withdraw from an investment in the early years, you may not get back the full amount you invested. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency. Taxation depends on individual circumstances as well as tax law and HMRC practice which can change.

The information contained within this newsletter is for information only purposes and does not constitute financial advice. The purpose of this newsletter is to provide technical and general guidance and should not be interpreted as a personal recommendation or advice.

UK DIVIDEND OUTLOOK

Although the overall level of dividend payments recently rose to another all-time high, the outlook is less favourable, and it may be time to temper expectations.

Underlying weakness

According to data5, total dividends paid by UK listed firms rose to £37.8 billion in the second quarter of 2019, a rise of 14.5%. This can be attributed to the continued Brexit-related weakness in sterling and buoyant special dividends. The exchange-rate effect accounts for half the underlying growth rate. UK dividends benefit from the weaker pound because multinationals earn the majority of their profits overseas.

The data also revealed a distinct weakening in the underlying growth of UK company payouts. And this weakness implies a more cautious outlook for future dividend payments.

5Link Asset Services, July 2019