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At the time of writing, we are only days away from Parliament voting on the proposed Brexit deal.  It would appear that there are 3 potential outcomes; Parliament supports the current deal, Parliament rejects the deal and we eventually leave on a “no deal” basis, or Parliament rejects the deal and we proceed to a 2nd Referendum and the possibility of no Brexit at all.  We feel that a no deal Brexit is likely to be the most damaging outcome for the UK economy, but because of this, it is also the least likely.  At this stage however, we would not rule anything out and therefore our advice to clients is to sit tight and see what happens.

Rather than focus all our attention on Brexit in this Market Update, we have taken a wider view of the global economic and political climate.  In this respect, there are a number of issues weighing heavily on investor sentiment, such as inflation, high personal and corporate debt levels, a strong US dollar and not least, heightened geo-political risk.  With regard to the latter, a potential trade war between the US and China is an obvious concern, as is any increase in Russian aggression towards Ukraine.

Against this backdrop of uncertainty, with the exception of the US, equity markets are trading at valuations below their long term averages relative to earnings.  Furthermore, even though the US stockmarket is trading a little higher than its long term average, the US economy is performing very well and there is a positive earnings outlook on Wall Street.  We would therefore argue that equity markets are far from being overvalued at the present time, with at least some of the downside risk from the issues mentioned above already priced in.

As mentioned in previous Market Updates, after such a strong year for equity markets in 2017, a more challenging investment environment was anticipated in 2018.  This has certainly been the case, with portfolio returns in the year to date standing in negative territory.  However, we would remind clients that any investment strategy is long term in its nature and in this respect, despite the prospect of further volatility in the short term, we remain confident in the medium to long term prospects for broadly diversified asset-backed portfolios.

The information in this guide was correct as at 3rd December 2018 and may be subject to change. This article does not constitute as personal advice and guidance should be sought to ensure that any investment meets your individual circumstances including risk tolerance and capacity for loss. The value of investments can fall as well as rise and you may get back less than you pay in. Past performance is not a reliable guide to future performance.

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This post was written by Steven Hodgson