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Global Market Outlook for Charities

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At EdenTree we strive to ensure our clients are informed about their investments and the services we provide.  Market conditions since the turn of the year have been variable compared to 2017 and our investment team have provided the below commentary, giving their view on recent events and the outlook for returns.

Global Market Outlook

One of the main characteristics of 2017 was the almost unnatural calm across financial markets, which moved serenely ahead, boosted by robust global growth, stable interest rates and an absence of inflationary pressures. However, the opening three months of 2018 demonstrated a stark contrast. Volatility returned abruptly to financial markets during the opening quarter, triggered by strong wage growth numbers from the US. The speed of the acceleration in wage growth caused financial markets to revaluate the expected pace of monetary policy tightening (expecting interest rates to rise more quickly) and as a result some investors de-risked their portfolios (selling some of their equity investments, detrimentally impacting upon the price). Since then, wage pressures and inflation more broadly have stabilised, suggesting that the monetary policy is not as behind the curve as initially feared.

Further volatility has been provoked by the increasing possibility of a global trade war, as policymakers in the US and China threaten to impose a number of tariffs which could restrict trade between the world’s two wealthiest nations and systematically reduce global economic activity. At this point, the US administration has released a proposed list of roughly 1,300 Chinese products subject to tariffs (and is exploring tariffs on $100 billion in additional products), and China’s Ministry of Commerce has responded in kind. However, the direct economic impact of the announced tariffs for both nations and global growth more broadly is expected to be relatively modest. According to Fitch Ratings, the direct impact of tariffs of 25% on trade flows amounting to $150 billion would negatively impact US GDP by 0.2% and China’s GDP by 0.3%. That is not to say that risks to the trade outlook do not exist and given the increasingly aggressive rhetoric in recent weeks, we believe that further escalation in trade tensions is possible, however, it is important to contextualise the size and importance of these measures that have been announced.

Additionally, whilst it has had little impact to date for investors (other than for Russian companies, in which we do not invest), heighten tensions in the Middle East and Syria may yet prove a distraction for markets.

The absence of volatility in 2017 was clearly due to a confluence of “Goldilocks” conditions, where everything was “just right” but not sustainable. While several positive conditions remain, particularly the healthy levels of global growth, it should be expected that volatility will remain above the abnormally low levels seen last year. Overall, the start of 2018 has not lacked headlines and volatility, however, in our view it is important to remain mindful of the fundamentals (healthy levels of global growth and accommodative monetary policy) which we believe remain intact, thus supporting our positive outlook for global equities.

At EdenTree we are long-term investors, seeking to look through the short term noise and focus on the fundamentals.  Taking a long-term view, we have considered markets to be overvalued for some time and have positioned our funds accordingly.  The return of volatility to markets is not a surprise and is a reflection of these heightened valuations and a return to more normal market conditions.   Whilst we monitor and evaluate macro events, we will continue to focus on researching and investing in the best responsible companies to generate long-term returns for our clients.

Keeping up-to-date with EdenTree

We publish a number of regular reports on our website to help keep our clients up to date.  Our monthly fund factsheets include fund manager commentary, performance figures, positioning and top 10 holdings.  We provide our voting and SRI Activity reports quarterly, explaining how as responsible investors we have engaged with companies on your behalf.  We also regularly publish themed research on a range of responsible investing issues, such as climate change, the living wage and human rights.

Contact Us

If you have any questions, please contact our Charity Team on 0800 032 3778 or at charities@edentreeim.com

The value of an investment can fall as well as rise as a result of market and currency fluctuations, you may not get back the amount originally invested. Past performance should not be seen as a guide to future performance. If you are unsure which investment is most suited to you, the advice of a qualified financial adviser should be sought. EdenTree Investment Management Limited (EdenTree) Reg. No. 2519319. Registered in England at Beaufort House, Brunswick Road, Gloucester, GL1 1JZ, UK. EdenTree is authorised and regulated by the Financial Conduct Authority and is a member of the Investment Association.