The state of the world economy is reasonably encouraging for investment prospects, even if stock valuations seem stretched in many markets and there is considerable political uncertainty.
Growth in the US economy seems solidly based with positive business and consumer sentiment positive and low unemployment. Valuations look particularly high for US companies, however, and the country's direction under Trump's presidency remains open to question. A string of judicial challenges and legislative defeats have stalled most of his declared policies.
The UK is facing the upheaval of Brexit. There is still no framework for the future relationship between the UK and the eurozone, and negotiations are likely to be complicated further by UK government's fragile majority. In these circumstances, the ultimate impact of 'Brexit' for the UK and eurozone is difficult to assess. Rising consumer debt in the UK is a concern, particularly since spending is likely to be hurt by the lack of growth in real incomes. By contrast, the outlook for the eurozone has brightened with the strongest economic growth since 2011 and falling unemployment.
Economic data from Japan has also been encouraging, even if it has failed to translate into a meaningful increase in consumption. The most attractive investment opportunities continue to be in exporting companies.
Monetary policy remains supportive for investment in most regions. Although central banks are beginning to unwind their accommodative stances in the UK and Europe, they have indicated that this will be an extremely gradual process. Even in the USA, the Federal Reserve is stressing that any further interest rate rises are likely to be made in very small steps.
We believe long-term investment in smaller companies can be particularly rewarding. Over the past 30 years, global investment institutions have come to dominate equity markets. Their buying naturally has been concentrated on the biggest and most liquid stocks, rather than smaller companies, however attractive the values and prospects of the latter may be. As a specialist private client firm, McInroy & Wood is much less hampered by liquidity considerations in its investment selections, and is in a strong position to exploit opportunities in the smaller company sector on behalf of its clients.