On the eve of British elections expected to deliver the first Labour government in 15 years, and between French elections that look set to deliver a strong result for hard-right party National Rally, Pie Funds Chief Investment Officer Mike Taylor looks at the state of markets in the Northern Hemisphere.
“We are seeing some weird movements. For example, the French market did sell-off last week,” Taylor told Market Watch, from Britain.
“Quite often what happens is that investors prefer to step aside, or de-risk their portfolio, on concerns that extreme politicians may take power.”
But longer-term, markets seem to trade through this kind of political upheaval, he said.
“We’ve seen evidence ... that these things don’t actually seem to have a long-term, meaningful impact.”
Taylor said wins for the hard-right in Italy in 2022 and Donald Trump in the US in 2016 were examples where markets were ultimately untroubled by political upheaval.
It also seems the economic conditions in Britain and in Europe are more upbeat than in New Zealand right now, he said.
“I certainly feel that the rest of the world is better positioned than New Zealand at the moment,” he said.
“It’s summer here now, so there’s activity and the streets are pretty busy.”
London’s Heathrow Airport was on track for its busiest summer on record with 30 million passengers going through over the past three months, he said.
The European Central Bank has already made its first interest rate cut and Britain has seen inflation fall back to the target of 2%.
“We’ve seen inflation is definitely moderating in most places around the world. It came down again in Germany [this week],” he said.
The US was also seeing good progress.
In New Zealand, rates were having a larger impact on the economy, he said.
“We are very sensitive to rate changes, we were first to hike, and they’ve been held up there for a significant period of time and there is quite a bit of stress throughout the New Zealand economy,” he said.
While there were pockets of that stress in Britain and Europe, it felt different, he said.
Tech boom rolls on
Meanwhile, as global investors continued to wait for falls in interest rates, the tech boom rolled on, Taylor said.
“I mean, it’s quite phenomenal, the run that we’ve seen for Nvidia.”
Shares in the AI chip maker surged 2% last month to briefly make it the world’s most valuable company. It has since eased back about 10%.
“I’ve talked with quite a few semiconductor analysts over here in the UK, and they think eventually this run is going to come to an end. It’s not a question of if it does, it’s a question of when it does,” he said.
“I’ve heard talk [that] it’s already at the top or possibly into the second quarter of next year, but it’s certainly a stock to be cautious of given that there is so much built into expectations of earnings just growing quarter on quarter.
“Eventually, even if it does meet its guidance, it may not be enough for the market.”
Despite that note of caution, almost all the market’s growth this year was coming from the big tech stocks, Taylor said.
The “mag seven” group – Nvidia, Meta, Amazon, Alphabet (Google’s owner), Tesla, Apple and Microsoft – were up 70% last year versus 6% for the remainder of the S&P 500. So far this year that group was up, circa 40% versus the rest of the market, which was basically flat.
The Market Watch video is produced in association with NZ Herald and Pie Funds. Liam Dann is Business Editor at Large for the New Zealand Herald. He is a senior writer and columnist as well as presenting and producing videos and podcasts. He joined the Herald in 2003.
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