In January 2017, I was concerned the tumultuous events of 2016 would quickly filter into the real world. The key short term issue was pending EU elections which thankfully delivered pro-EU mainstream candidates. The EU, ex UK is very much intact. My other concern was President Donald Trump.
We were right about tighter monetary conditions in the UK and USA – these arrived on cue hence their disruptive effect dissipated. We were right on sterling remaining weak due to the ongoing “Brexit” negotiations.
Gains in global capital markets appear attributable to a few key factors, higher US and emerging markets GDP growth, expectations of US fiscal stimulus in the form of corporate tax cuts, higher EU GDP growth and good tech earnings reports.
With the “late cycle” bull market in its eighth year, 2017 begged the question, “how much longer can the bull market run?” There were signs of “irrational exuberance”. It seemed eerily similar to 1998-1999 period when valuations started to lose touch with reality.
One feature of the bull market is its extremely binary nature. Investors are quick to punish companies with slowing growth, average results. They are quick to push valuations to excessive levels for concept companies. This creates distortions.
By mid-2017 the US Federal Reserve, Bank of England, People’s Bank of China, the Bank of Japan and the Bank of Canada had signaled a turn towards higher interest rates. This was partly due to GDP growth, partly inflationary pressures, partly the desire to cool property markets. But undoubtedly the collateral damage of nine years of crisis era interest rates became undeniable and no longer politically acceptable.
“Quantitative easing” created a two track system benefiting asset rich / high debt individuals, but hitting pensioner/ savers income, increasing generational wealth gaps, societal imbalances, and destabilizing the political consensus. The arrival of far right nationalist / populist movements, even in Germany, represents a growing problem for mainstream governments. The UK saw a sharp swing to far left politics as the youth vote backed Labour’s Jeremy Corbyn.
Ending the QE panacea was long overdue. Maybe it was five years overdue. As QT (quantitative tightening) arrives, higher interest rates will be a very strong brake on $276trn of global debt (source: Institute of International Finance). Investors expect another ¼ point hike in the US and UK in the first half of 2018.
The steam roller of 2016, as popularized by the acronym “FAANG” (“Facebook, Apple, Amazon, Netflix and Google”) kept rolling in 2017. The tech behemoths could be characterized as tweaking their product offerings in 2017. As per normal valuations reflect expectations of considerable growth in 2018 and beyond.
Facebook made considerable progress monetizing its user base. Q3 revenue growth +47%, EPS growth +77%
Alphabet Inc Class C
Q4 revenue growth at 12% and 24% earnings growth are partly derived from Apple services growth, particularly in iCloud, AppleCare & ApplePay
Amazon’s Jeff Bezos became the world’s wealthiest individual. Amazon’s Q3 revenue growth of 23.7% beat expectations.
Undoubtedly the story of 2017 were virtual currencies, (or are they commodities? or gambling chips? no one is sure). We know they are here, we don’t know what next!
The staggering Bitcoin gain, whether a function of investment mania, an acceptance of a “new” asset class, a migration of technology to the mainstream investor, no one knows for sure. Bitcoin is a poor vehicle as a medium of exchange and its value is far too volatile for it to function as a normal currency. It pays no interest. It simply does not work as a means of settling trade. Can you imagine having a Bitcoin mortgage?!?
The nearest peer crypto currency, Ethereum, also recorded sharp gains, suggesting a lack of investor differentiation with Bitcoin.
As 2017 ends, there is an “Alice in Wonderland” feeling about crypto currencies, a “Mad Hatters Tea Party” where investors are arriving, but waiting for some event to puncture the proceedings. Increasing evidence of missing/ stolen coins and fraudulent attacks on coin exchanges suggest a lack of security for this asset class. Crypto-land is cryptic on solutions to its evident problems.
|Security||Date||Rec.||Entry Price||Target / Hit Target||Gain/ Loss (%)*+|
|Convatec||12/1/2017||Buy||239p||325p/ Yes / 6 June 2017||-14.2|
|Millennium & Copthorne||12/1/2017||Buy||462p||600p/ Yes/ 1 Nov 2017||29.9|
|Wizz Air||12/1/2017||Buy||1798p||2250p/ Yes/ 26 May 2017||96.0|
|Worldpay Gp||12/1/2017||Buy||285p||350p/Yes/ 6 July 2017||50.1|
|Soco Intl||12/1/2017||Buy||156p||175p/ No||-32.1|
|Manchester & London||6/3/2017||Buy||350p||380p/Yes/ 4 August 2017||29.7|
|LSE||6/3/2017||Buy||3081p||3600p/ Yes/ 14 June 2017||3.5|
|Gem Diamonds||12/3/2017||Buy||99p||140p/ No||-28.2|
|Next||12/3/2017||Buy||4009p||5000p/ Yes/ 15 Sept 2017||9.3|
|NMC Healthcare||12/3/2017||Buy||1805p||2200p/ Yes/ 31 May 2017||56.2|
|Air Partner||9/6/2017||Buy||116p||150p/Yes/ 14 Dec 2017||22.4|
|Mercantile Inv Trust||9/6/2017||Buy||1907p||2100p/Yes/ 30 October 2017||12.1|
|BNP Paribas||11/5/2017||Buy||€67||€80/ No||-6.7|
|Munich Re||11/5/2017||Buy||€177||€200/ No||3.9|
|Bankers IT||28/6/2017||Buy||798p||925p/ No||9.8|
|Dunedin I&G||28/6/2017||Buy||265p||300p/ No||-2.2|
|Electra PE||28/6/2017||Buy||1721p||2100p/ No||7.0|
|Amur Minerals||4/7/2017||Buy||6.3p||9p/ Yes/ 9 August 2017||11.1|
|Dart Group||30/8/2017||Buy||526p||650p/Yes/ 21 November 2017||30.2|
|Domino’s Pizza||7/11/2017||Buy||342p||400p/ No||-2.0|
|Restaurant G||7/11/2017||Buy||296p||400p/ No||0.0|
|Just Eat||7/11/2017||Buy||813p||950p/ No||-4.9|
|Manchester United||29/6/2017||Buy||$15.90||$20.00/ Yes/ 23 November 2017||31.4|
|Johnson Matthey||8/11/2017||Buy||3462p||4500p/ No||-11.5|
*Prices taken on 21st December 2017
*Prices do not reflect trading costs, stamp duties, levies or compliance charges.
If you would like to receive our 2018 Investment recommendations tailored specifically for you then please complete the following form to enquire about opening an account with us.
Buy: A “buy” rating is applied to companies with established businesses that are profitable and where there is further profit growth expected. A “buy” recommendation means the analyst expects the share to reach the share price target on the note.
Hold: The company’s valuation appears to reflect investor expectations in the short-term. Alternatively the company is awaiting key developments that will impact on the share price. Investors are advised to await the resolution of these key developments.
Sell: The company’s valuation appears too high having regard to material uncertainties, declining profit prospects or has sizeable funding requirements. A sell recommendation may also be applied where the board have failed in key objectives or appear to be frequently changing strategy. A sell recommendation means the analyst expects the share to fall to the price target on the note.
Neutral (Not Rated): The analyst does not maintain a view in either direction.
Please be aware that the following disclosures of Material Interests are relevant to this technical note:
The report’s author certifies that this research report accurately states his personal views about the subject security, which is reflected in the ratings as well as the substance of the report.
Collins Sarri Statham Investments Ltd (CSS) does not in any of its publications take into account any particular recipient's investment objectives, financial situation, and specific needs and demands. Therefore, all CSS publications are, unless otherwise specifically stated, intended for informational and/or marketing purposes only. CSS shall not be responsible for any loss arising from any investment based on a perceived recommendation.
No publication (including recommendations) shall be construed as a representation or warranty that the recipient will profit, nor avoid sustaining losses, from trading in accordance with a trading strategy set forth in a publication.
This research is non-independent and is classified as a Marketing Communication under FCA rules detailed in their Conduct of Business Rulebook (COBS). As such it has not been prepared in accordance with legal requirements designed to promote independence of investment research and it is not subject to the prohibition of dealing ahead of the dissemination of investment research outlined in COBS 12.2.5.
Trading in the products and services offered by Collins Sarri Statham Investments Ltd (CSS) may, result in losses as well as profits as the value of investments may go down as well as up. You may not get back the full amount you have invested. Any reference to past performance should not be viewed as an indication of any future performance. Investments held in overseas markets are subject to the effects of changes in exchange rates which will impact on the value of the underlying investment. Investments made in AIM and penny shares carry an increased risk due to the difficulty in creating a market in these shares. There may be a substantial difference in the buy and sell price. Leveraged products such as Contracts for Difference (CFDs), derivatives, commodities & Foreign Exchange (FX), carry a higher risk to your capital. They can lose their value rapidly and you may lose substantially more than your initial investment. A higher risk to your capital. They can lose their value rapidly and you may lose substantially more than your initial investment.
The information contained herein is based on materials and sources that we believe to be reliable however we make no representation or warranty, either express or implied, in relation to the accuracy, completeness or reliability of the information contained herein. Please note that the figures shown may, in some instances, be rounded to the nearest penny. Prices can move sharply from those quoted in this document. Current prices can be verified by calling one of our brokers. CSS is under no obligation to update the information contained herein. Neither CSS, nor its affiliates, nor its employees shall have any liability whatsoever for any indirect or consequential loss or damage arising from the use of this document.