Why you may want some British stocks in your stocking

Friday, 20 December 2019
Adelaide, Australia
By Bernd Struben

 

  • Markets
  • In the mailbag: India, China…and Greta?

 

Well that’s a relief.

The Democratic controlled House of Representatives impeaching Donald Trump was all but assured from the day he was handed the keys to the White House.

Yet it took three years to get here. Three years of noise and nonsense. And all to see the vote go right along partisan lines.

Not a single Republican thought the evidence presented warranted removing Trump from office. Yet only two Democrats joined them in voting against both impeachable charges brought against him.

But at least this part of the show is finally over.

Part two should be fast and furious. That takes place in the Republican controlled Senate. Most likely in January.

The Democrats have already locked horns with the Republicans over just how that’s going to unfold. But if team Trump has its way, we’ll be hearing a lot about Joe and Hunter Biden’s dealings in Ukraine. As well as seeing the spotlight cast on some of the ‘deep state’ players behind launching the investigations into Trump in the first place.

Break out the popcorn!

So how did US markets react to news that the president just became the third in history to be impeached?

The Dow Jones gained 0.49%. The S&P 500 and NASDAQ also posted gains. In fact, all three major indices closed for new record highs. Hardly the reaction of investors who see a nation in crisis.

Of course, optimism over the phase one trade deal with China didn’t hurt either. Speaking to CNBC, US Treasury Secretary Steven Mnuchin said the deal was complete and would be signed in early January. For now, we’ll take him at his word…

Then there’s Brexit. Another bandage that was long overdue to get ripped off.

Boris Johnson’s resounding thrashing of the Jeremy Corbyn led Labour party means Brexit is actually going to happen. Soon.

Rather than panic at the image of an isolated Britain navigating a hostile world bereft of Brussel’s guiding hand, investors have sent the FTSE 100 higher every day since the election.

You can see the five day chart below:

 


chart image
Source: Google Finance
Click to enlarge
 

 

The index of 100 top UK stocks by market cap is up 4.2% for the week. To put that in perspective, it’s only up 12.8% for the year.

In fact, it’s only up 19.8% since 23 June 2016. That’s the date the majority of UK voters opted to part ways with the EU.

Saddled with uncertainty, the UK market has been one of Europe’s laggards. (Along with Spain’s IBEX 35.) With that uncertainty removed, 2020 could prove a good year to up your exposure to British stocks.

Exchange traded funds are a fairly simple way to gain broad exposure to various markets. If you’re intent on sticking with ASX offerings, you could consider the BETA F100/ETF [ASX:F100]. Though this has underperformed the FTSE 100 over the past week…and year.

If you’re comfortable buying international shares, there’s the  ISHARES FTSE 100 UCITS ETF [LON:ISF]. It hasn’t perfectly matched the FTSE 100’s performance, but it’s pretty close.

Now a look at the markets.

Markets

Overnight, the Dow Jones Industrial Average closed up 137.68 points, or 0.49%.

The S&P 500 closed up 14.23 points, or 0.45%.

In Europe the Euro Stoxx 50 index closed almost flat…up 0.17 points, or 0.00%. Meanwhile, the FTSE 100 gained 0.44%, and Germany’s DAX closed down 10.20 points, or 0.08%.

In Asian markets Japan’s Nikkei 225 is down 65.81 points, or 0.28%. China’s CSI 300 is down 0.09%.

The S&P/ASX 200 is down 23.72 points, or 0.35%.

West Texas Intermediate crude oil is US$61.22 per barrel. Brent crude is US$66.54 per barrel. That’s starting to creep into overvalued territory by my reckoning. If crude moves significantly higher, you may want to consider taking a short position. (One way to do this is via an inverse oil ETF, which gains when the price of oil falls.)

Turning to gold, the yellow metal is trading for US$1,478.81 (AU$2,147.25) per troy ounce. Silver is US$17.06 (AU$24.77) per troy ounce.

One bitcoin is worth US$7,146.31.

The Aussie dollar is worth 68.87 US cents.

In the mailbag: India, China…and Greta?

With the long holiday break beckoning, I wanted to get back to a few readers who’ve written in this week.

First this letter, from Geoff:

As a long time subscriber and reader of your newsletters I find them useful and entertaining and educational.

Keep up the good work.

Of late you seem to have developed a preoccupation with US ,Trump and the China/US trade war.

India is the second most populous nation on earth and is slowly emerging into the 21 century dragging its historical and social baggage kicking and screaming with it.

It is difficult to get any useful insights into what is actually happening in India and what the future holds for this great and sprawling nation.

I have twice attempted to invest in India via an ASX Fund but in both cases they folded before they became operative.

Any insights and any opportunities?

Thanks Geoff. I’ll bear our preoccupation with US affairs in mind. Please excuse today’s lead!

I didn’t have a ready answer for you, so I turned to colleague Ryan Dinse. Among other hats Ryan wears, he’s the editor of Exponential Stock Investor. Here’s his reply:

Hey Bernd

Suggest to Geoff to check out the India Avenue Equity Fund. It’s tailored for New Zealand and Aussie investors looking to get exposure to India’s growth story.

I dealt with their CEO, Mugunthan Siva, last year and he seems a decent bloke. They provide a lot of insight and information too for those who want to understand what’s happening on the ground in India.

The fund invests directly in Indian equities which they think is the real opportunity in the growth of India. These are stocks listed in India that overseas investors can’t usually access (without a special license).

I think Geoff is spot on to be looking here. A huge unfolding story that not many people are talking about. Especially the very favourable Indian demographics.

Hope that helps.

On the subject of India’s rapid growth, reader Guido wrote in regarding my noting that India’s 1.37 billion people are upping their coal fired electricity by 4.6%.

Well, that wasn’t exactly why he wrote in. It appears I may have snubbed Greta Thunberg in Wednesday’s instalment.

Dear Bernd,

How dare that Greta Thunberg expect a stable and viable climate to support the wellbeing to the planet, its people, the economy and all the creatures that depend on it. How dare she expect a bunch of chronically ignorant and desperately short term greedy people who are prepared to do anything including genocide to satisfy their lust for power and greed to show the least interest in future generations when they don’t even care about their own children.

Hopefully your ability to analyse the economy and companies is better than your ability to understand the basic facts of global warming. Given your propensity to echo the climate deniers who prolificate the web and American media maybe you have not aware of what the science and observation of climate are showing or for that matter what is happening outside your front door.

Admittedly it’s 46 degrees outside my front door right now. The fourth scorching day running. But then tomorrow’s high is supposed to be 20 degrees. Brrr.

As for the basic facts of global warming, if the current CO2 linked climate models are even close to correct, you may want to invest in companies specialising in sea walls, air conditioning, and singlets.

Don’t shoot the messenger, but The Age reports that ‘China alone could exceed a coal power limit set for the entire world by 2035’.

And it’s not just coal. Bloomberg reports that China just hit a global record for monthly oil imports. ‘China imported an unprecedented 11.18 million barrels a day in November.’

That’s almost half a barrel of oil imported — and later burned — each day for every person in Australia.

Perhaps a letter to Xi Jinping is in order?

Cheers,
Bernd