The Long and Short of it: Review of markets October 2019
Callum Abbot, Portfolio Manager of the JPM UK Equity Plus Fund, reviews the markets.
I normally write this blog before the first weekend of the new month, but with the way the days fell at the end of the month I could not get it done. It’s probably a blessing. I would likely have talked up England as dead certs to lift the rugby World Cup only to have to make a grovelling apology in next month’s blog.
Being the favourite does not always sit well, oftentimes it is preferable to be the underdog raring to prove the doubters wrong – just see England vs New Zealand only the week before the final.
Prime minster Boris Johnson proved a scrappy underdog in his negotiations with the EU. Against the odds he was able to negotiate a new deal that was largely acceptable to parliament.
However, his accelerated timetable proved unacceptable. I mentioned last month PM Johnson is hamstrung by the makeup of parliament which would force him to call an election and extend Article 50. This has come to fruition and December 12th is the date.
In this endeavour Johnson is not the scrappy underdog but the firm favourite with the Tories commanding a 12 point lead over the Labour party in the polls. You do not have to look far back to remember when firm favourite Theresa May failed to capitalise on a 17 point poll lead in the 2017 election due to a poor, defensive election campaign that did little to inspire voters.
This election is incredibly hard to call. Allegiances to parties will be tested by passionate views on Brexit and those beyond the two main parties could play a critical role as their clear message on Brexit may well appeal to voters. Johnson will be desperate to convert Brexit voting Labour supporters to his cause in narrowly lost seats particularly in the North of England. One thing that is for sure is capital markets will be extremely nervous if there are any signs that Labour and its hard left policies are gaining an advantage.
Last month I mentioned a brief value rally and while it has yet to truly get going the kindling is catching. Keep an eye on rising bond yields as the key trigger here.
Barclays. One for the value investor. Trading at just 0.5x book value this global bank is deeply out of favour but with expectations so low only a glimmer of improvement is needed to rerate the stock. Johnson’s deal announcement backed up by better than expected results led to the stock rallying 11% over the month of October. If Barclays can tread a credible path of improved profitability then the share price has plenty of room to rerate.
De La Rue. It is said the Queen does not carry cash, if it were limited to her then De La Rue, the currency printer, would be a fledgling business. Unfortunately for the company, the Queen has proved quite the trend setter in this regard, and hence De La Rue is looking precarious in the increasingly cashless world. In October the company announced a profit warning leaving the shares down over 60% this year.
Callum Abbot is a portfolio manager for the JPM UK Equity Plus Fund