Weekly Marketing Commentary – 6 December 2019

M&S Property Gating isn’t the same as Woodford
This week’s gating of the M&G Property fund has reignited the debate between whether commercial property funds should be daily dealing or not. And even though the press coverage has been as high as the Woodford debacle, it’s much less controversial. Unlike equity funds, commercial property funds are inherently much more illiquid and harder to chop and change. Brexit uncertainty has meant that transaction volumes have languished at recent lows. With few buyers or sellers, property funds are even more vulnerable to a run. The need for prudent liquidity management is becoming ever more important.

What we could query however, is the high level of retail exposure within the direct property space. High streets are dying out in favour of online shopping. Even then not all retail exposure is bad, owning supermarkets or warehouse centres for the likes of Amazon is beneficial. What we really could question is if some of the funds could have sold down their bad retail exposure sooner and not during a time of stress.

OIL: OPEC Slides towards further cuts
It appears OPEC is gearing up for further oil cuts this year. A preliminary meeting of ministers involving Saudi Arabia and Russia, recommended production cuts of 500,000 barrels a day. Current production levels are around 1.2m barrels a day. The fear is that crude market could be heavily oversupplied in the first half of next year as US shale supply continues to ramp up while the global economy remains weak. So far OPEC cuts have done little to raise the price of crude oil because of US Shale supply and whether the latest cuts will have a significant impact remains to be seen.

Elsewhere but continuing with the same theme, Saudi Aramco has managed to raise $25.6bn in its initial public offering becoming the most valuable firm in the world and knocking Apple off the top spot. Market valuation for the state-owned oil giant reached $1.7tn just shy of the $2tn target the company was hoping for.

Eurozone: Does Germany Need Public Stimulus?
As Eurozone recession fears remain elevated and growth prospects look muted, economic forecasters and central banks alike have been urging member states to open their cheque books and spend their way out of the trouble. But key member states like Germany could be forgiven for asking whether they even need to. Latest data shows a tightening labour market, a relatively robust domestic economy and rising construction rates. These are some of the reasons that explain why German Chancellor Angela Merkel is keen to continue balancing the budget. Having said that, the chancellor’s tone is softening.

One of the main reasons in the change in tone is the continued deterioration in industrial production. New orders have dried up and not just from external customers – domestic demand has also been shrinking. The wider eurozone bloc suffers from the same ailments, but with even higher unemployment rates. The good news is that inflation for the bloc is picking up, a sign that the ECB’s low interest rate policy is working.

Global: Trump opens up new trade wars
China-US trade talks continue to progress well with China planning to scrap tariffs on US imported soybeans and pork products. However, the self-proclaimed tariff man President Trump took the opportunity this week to threaten Brazil, Argentina and France with hefty levies. Argentina and Brazil where accused of currency devaluation while France over Macron’s imposition of a digital services tax.

In July France passed a tax that targets around 30 big tech companies. The three percent charge applies to revenue from digital services earned by firms with more than $28m in French revenue and $830m worldwide, essentially appearing to discriminate against American tech companies. In turn, the Trump administration threatened duties of up to a 100 per cent on French imports of cheese, Champagne and other products. Trump also said he was putting new tariffs on steel and aluminium from Brazil and Argentina.

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