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Investment Committee Meeting Minutes - November 2015

  • By Richard Ellis
  • 21 Dec, 2015

Equity markets have started to “wobble” in recent times, through a general nervousness in the lead up to the US interest rate decision, concerns about the impact of the falling oil price and also due to issues in the high yield bond sector. As a result, markets have returned to a “risk off” environment, with negative sentiment the dominant force in the last few weeks.

Fraser Heath Market Update


  • The UK equity market was broadly flat in November, with the FTSE All Share index rising by 0.6% as the oil price revisited its August low point.

  • Chancellor George Osborne delivered his autumn statement signalling further austerity ahead.

  • Negative UK inflation persisted as food and fuel prices fall.

  • The Bank of England voted 8-1 to keep interest rates on hold and said that inflation was only expected to pick up slowly, staying below 1% until the second half of 2016. This should limit upward pressure on UK interest rates in the short term and is potentially positive for UK consumer spending if wage growth continues to exceed inflation.

  • In company news, Rolls Royce issued a downbeat trading update forecasting that 2015 profits would be at the lower end of expectations and that they expected “sharply weaker” demand in 2016 as pricing weakness is expected to weigh on margins.

  • BHP Billiton saw its share price slide, not only as a result of falling commodity prices, but also when one of its joint ventures in Brazil was in the news regarding a toxic mine spill.

  • Imperial Tobacco confirmed the strength of the cash flow in tobacco companies with a 10% dividend increase.


  • The US equity market endured a challenging November amid renewed concerns about global economic growth and rising US interest rates to finish the month flat when the S&P 500 index returned 0.30% in US $ total return terms.

  • Financial stocks posted the strongest gains benefitting from rising expectations that banks stand to gain if the Fed raises interest rates for the first time in almost a decade at its December meeting.

  • The unemployment rate, which was expected to remain steady, dropped to 5%. Another bright spot in the job numbers was the news that US wage growth was starting to accelerate.

  • Against this backdrop, the US economy grew faster than initially thought in the third quarter, with the strong momentum likely to further bolster the Fed’s case for an interest rate rise in December.

  • Although third-quarter growth remains well below the 3.9% rate recorded for the second quarter, the solid numbers fuelled by improved customer spending is likely to reinforce the view among US policymakers that the economy is on a steady growth trajectory.


  • European equity markets increased in November as the Euro zone economy showed resilience in the face of slowing emerging markets.

  • All market sectors, bar utilities, recorded gains in November. The oil and gas sector was the leading outperformer, despite a further drop in the oil price, followed by the technology and industrials sector. Greek banks were among the biggest detractors as they raised new capital to reinforce their balance sheets.

  • Unemployment continued to fall gradually and the European Commission’s Economic Confidence index rose to its strongest level in 5 years.

  • While the euro macro backdrop continued to improve, inflation remained subdued, fuelling the debate for additional monetary stimulus by the ECB. Aiming to raise inflation expectations, ECB President Mario Draghi restated his willingness to consider further measures if need be to tackle low inflation and spur growth in the Euro zone.


  • November was a tough month for Asian equity markets given some negative news flow from China and the increased likelihood of an US interest rate hike in December.

  • Economic data from China was mixed as industrial production growth slowed and the contraction in exports deepened, although property and retail sales growth remained robust.

  • India’s quarterly earnings figures were disappointing and growth indicators remained mixed.

  • Better news for the Australian equity market which performed relatively well, benefitting from signs of improvement in its economy.

  • The prospect of higher US interest rates dented the appeal of emerging equity markets. This coupled with concerns over emerging Asia’s growth prospects and disappointing corporate earnings results for the Q3 2015


  • The Japanese equity market ended November marginally higher.

  • In macro-economic terms, preliminary estimates suggested Q3 GDP fell at an annualised rate of 0.8% quarter-on-quarter, worse than the expected decline of 0.2% and resulted in the economy slipping back into technical recession. However, the contraction was largely attributable to an inventory adjustment, which helped investor sentiment.

  • The Bank of Japan held back from expanding its quantitative easing program, as a weak yen continued to support economic growth.


  • November was positive for most major bond markets with corporate bonds outperforming government bonds

  • The Bank of England’s forecast of inflation was lowered and as a result the market pushed out its expectations of an interest rate rise until 2017. This helped both Gilts and high quality sterling dominated corporate bonds to rally.

  • According to data from Merrill Lynch, Gilts returned 1.0%. This compared to a return of 1.8% for sterling investment grade corporate bonds.


Equity markets have started to “wobble” in recent times, through a general nervousness in the lead up to the US interest rate decision, concerns about the impact of the falling oil price and also due to issues in the high yield bond sector. As a result, markets have returned to a “risk off” environment, with negative sentiment the dominant force in the last few weeks.

Concerns over the outcome of the US interest rate decision will have a short-term impact but the impact of lower oil prices is likely to be a more long term problem for certain parts of the global economy and markets need to adjust to this.

Given our above comments, we expect a period of weak global economic growth and high volatility in what are challenging market conditions. Obviously investors are looking for good long term “real returns”, ie net of inflation, and even though the headline investment returns may have been lower in 2015 and are likely to remain so into 2016, we need to bear in mind that inflation remains low and so “real returns” remain positive.

Date of next meeting:  20th   January 2016

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