It’s a difficult time to be an investor given how markets stubbornly refuse to break out into a decent rally. So far this year we’ve had enough ups and downs to make anyone owning shares and bonds travel sick.
The new trading week got off to another mixed start, with markets initially down across Europe and Asia before some territories managed to make positive progress.
“Election jitters in France saw the CAC 40 index initially fall 0.4% before rebounding to trade 0.7% ahead. It looks like a close fight between Emmanuel Macron and Marine Le Pen, and investors are starting to wonder what would happen if the latter was victorious given her protectionist policies,” says Danni Hewson, financial analyst at AJ Bell.
“Hong Kong’s Hang Seng index slumped by 3.2%, with healthcare, consumer cyclicals and technology stocks the worst affected. Tech was also out of favour on the UK market, with Scottish Mortgage Investment Trust and Ocado among the top fallers.
“These market moves suggest investors are worried about rising interest rates as that makes highly rated stocks – as seen in the tech space – less appealing as it reduces the value of future cash flows.
“Investing in tech has been about backing companies with prospects for strong growth in the future, but that future growth would be worth less if rates go up. Investors are now less willing to pay high ratings to own these types of stocks and once again you’re seeing a shift in preference towards value stocks, which are offering jam today rather than jam tomorrow.
“Sainsbury’s was the top FTSE 100 performer thanks to positive broker comment, while among the mid-cap stocks media group Ascential jumped 7% after confirming speculation that it might break itself up.
“The past five to 10 years have seen quite a few companies split into two or three parts as a well of unlocking hidden value, such as Anglo American, Prudential and BHP.
“The argument is that certain assets might be worth more as standalone entities rather than part of a bigger corporation. Splitting up also enables each segment to have a tighter management focus rather than a series of divisional bosses being told what to do by the ultimate parent company.”