No One’s Safe At Sea
28th March 2017
To quote John F. Kennedy, “Change is the law of life. And those who look only to the past or present are certain to miss the future”. As Article 50 is enacted, coincidentally just a few days after the leaders of the EU’s 27 countries celebrated the bloc’s 60th anniversary in Rome, one of the few constants in life – change – continues at an increasingly rapid pace on the geopolitical stage.
The UK, one of the EU’s biggest and most influential members since its initial entry under Tory Prime Minister Edward Heath in 1973, is set to walk out the door. What is to come remains to be seen but change will be guaranteed.
Change equals uncertainty and we’ve all heard the adage, “the markets hate uncertainty”, and while the market is in fact a system without sentience or emotion it does react to information or a lack thereof.
This uncertainty is the life blood of the stock investor. It’s the very thing that allows risk takers to earn the attractive returns. If stocks offered the same level of certainty as bonds, there would be no reason to discount their prices and they would earn the same return as bonds. Alas risk and return go hand in glove.
This is, however, based on bonds offering a defined level of certainty, and some would argue that the certainty within bond markets that are being adversely effected by global inflation and quantitative easing is at best significantly diminished and at worst a bubble about to violently burst given the right pin.
Bond holders are quickly realising that the safe haven that the bond market once offered is no longer as secure as it once was but safety and security comes at costly price. Germany’s government bonds, considered the world’s safest, give a negative return for your investment (essentially paying £11 for a £10 note).
So, what are the options for Bond holders nervous of what is to come? Moving up the risk spectrum and swapping bonds for shares is an option some will consider but to dramatic a step for many.
As the lines between differing levels of risk are more blurred than they have been for a number of years and, with bond levels moving up the risk curve, good quality commercial property assets look in many cases like a considered investment choice the risk averse should consider.
Quality commercial assets with strong convents now offer a viable alternative for risk averse investors and, if not in focus right now, are well worth closer investigation.
The rapidity of change shows no sign of slowing and investors will revel in the uncertainty it brings with high risk and equal reward. For the bond holder, the safe haven may be a thing of the past with the safest bet being a move into property. Only time will tell and nobody has a crystal ball but one thing is for sure, things will be different tomorrow.