Over the last few months we have seen a continuing trend of flat investment performance in many of our client portfolios. Some of you have expressed your concerns and requested an explanation for this divergence. We wanted to address your concerns, explain what is happening in the market and why we have taken this approach.
A little over a year ago we made a conscious decision to move our client portfolios to a heavier weighting in International allocations. This was based on the overall under performance of these regions the previous three years and the fundamental valuations of many of the companies in these countries. In simpler terms, these stocks were cheap, much cheaper than many US companies that had continued to rally in the long term bull market. This was done by investing more in developed international country companies, but also emerging market country companies.
What is happening in the market?
Towards the end of last year, synchronized global economic growth helped send stock markets soaring. US tax cuts and confirmation of continued US economic growth from the Federal Reserve, along with their intentions to be very selective in raising interest rates, painted a very positive outlook picture for global markets.
Since then we have seen some events that have made that picture look a little blurry. Emerging market's stocks fell 8% in the second quarter (their sharpest decline in nearly 3 years) as global trade tensions escalated, US interest rates rose faster than anticipated, and the US dollar (as shown below) strengthened. In May of this year, retail sales in China’s economy grew about 9%. This would be a huge report in any other country, but in China it was the smallest increase since 2003. The administration has imposed tariffs on $50 Billion worth of Chinese exports and announced additional levies of $200 Billion worth of goods.
With the concern of China at the forefront, we will continue to monitor the markets on a daily basis. Our plan of action is to take a long-term outlook on capital markets and feel that shifting our allocation to less international exposure at this time would not be beneficial. We will continue to communicate with you on a quarterly basis where we stand on this topic.
We value your loyalty and we are dedicated to professionally supporting, educating, and providing informed direction to each and every client