Economic outlook and the prospects for AiM investors
In early April Christine Lagarde, the head of the International Monetary Fund (IMF), warned that time is running out to revive the global economy. She said “The good news is that the recovery continues; we have growth; we are not in crisis. The not-so-good news is that the recovery remains too slow, too fragile and risks to its durability are increasing”.
The speech was made ahead of the IMF’s spring meeting in Washington when it is widely expected that its growth forecasts for the global economy will be lowered.
Ms Lagarde said that co-ordinated action across the world was needed to prevent the global economy from slipping into a “new mediocre” of low growth that would be “hard to reverse”. She warned that persistent low growth could become “self-reinforcing” if policymakers kept delaying action. “This has consequences for the social and political fabric in many countries”, she went on to say “even in Germany where the economy has been strong”.
What impact Ms Lagarde’s comments will have remains to be seen? However, the move to ultra-low interest rates and even negative rates in the developing markets, coupled with vast amounts of quantitative easing has done little yet to stimulate growth and bring inflation back to a healthy level.
At the time of writing the IMF’s forecast for global growth this year is 3.4% and was set in January. We expect this to be revised down in their next report.
Financial markets, including the UK, continue to be impacted by fears about the slowdown in economic growth in China with its impact on energy and commodity prices. Another factor that will have increasing impact on our own market over the next three months is the EU referendum. We anticipate that a BREXIT vote will send the market lower in the short term before a gradual recovery. We expect that a vote to stay will almost certainly result in a relief rally. In such an event however, investors will be advised to reflect on what happened after the general election last year . The FTSE 100 index raced through 7100 on the majority Tory victory only to fall sharply over the next seven months!
Whilst the issues highlighted to date will have implications for the mainstream financial markets they will probably have less impact on AiM.
Since late 2014, whilst exhibiting volatility, the FTSE AiM All-Share Index has been somewhat less of a rollercoaster than the FTSE 100 or FTSE All-Share indices.
Our AiM portfolio has been less volatile still. A major reason for this is that we have avoided the highly cyclical energy and commodity sectors and have focussed on businesses more biased toward our domestic economy where concerns about China and global commodity prices have less relevance.
Commentary provided by Pilling & Co Stockbrokers Limited, click to find out more about our ESP AiM Portfolio Service.