1st Quarter Sector Update

Wednesday, 11th April 2018 13:11 - by Rajan Dhall

It has been an interesting start to the year in the UK, trends have not been exactly conforming to the decade long upward trajectory. In terms of sectors some of the most reliable and trusted have turned as political pressures and global tensions disrupt the status quo. On the macro front, equity investment managers are looking for ways to deal with the impending exit of QE and easy monetary policy. 

Over here in the UK, I have been pointing out in the last 6-10 months that the High Street has been continuing to struggle. In the chart below I have included some of the biggest High Street names. Inflation has been a problem in the UK since the referendum although the pound has recovered somewhat the initial aftermath put lots of pressure on companies that import goods to sell to us from overseas. Online retail has also really put a squeeze on margins as Amazon etc are pushing prices lower as savvy shoppers hunt for bargains. I actually think that maybe we should be looking at an inflation measure that includes online goods alone to compare the effects it has on locals. Wages should also be considered and unless we see some significant increases in wage inflation vs inflation in real terms I cannot see the retail market improving anytime soon. One last word of caution on this outlook is that everything has a value, bear in mind that some of these companies have assets and inherently have a floor price and a lower bound for sales levels.

In other sectors the government and politics have taken center stage. The property sector, usually one of my personal favorites has been hit by regulation probably with good reason. The UK administration are making companies work harder on land banking timing and thresholds of market timing on new builds. Since the announcement at the budget, most of the companies have reported and produced good results. All of them have acknowledged there may be issues moving forward and recent data in the housing sector has been less than impressive. 

It's not all doom and gloom, there has been a firm rebound in Pharma stocks. Since the US election there has been a lot of pressure on the Co.'s as it had been brought to light some companies had been charging too much for products with such a low cost of production. We cannot talk about Pharma's without mentioning some talk of sector consolidation, Japan's Takeda has been looking at Shire in recent times and there has also been rumors of Hikma being acquired. This could be a theme moving forward so keep and eye on some sector consolidation. 

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.