April has been relatively stable, and possibly even cautiously optimistic. The UK has shown strong performance, despite the possibility of several companies moving their primary listings elsewhere. The US has also seen a rally this month, partially driven by increasing interest in AI capabilities. We are still in the midst of a cost of living and energy crisis, but promising data around renewable energy is starting to emerge.
Should We Be Worried About AI?
We have seen an uplift in the markets since the start of the year. But it’s important to remember that the global market is more than half US stocks. In turn, the US market is heavily dominated by a handful of tech companies. Microsoft and Apple alone account for almost 30% of the S&P 500’s rally, and now comprise 13.4% of the index.
Artificial Intelligence is one of the factors driving renewed interest in the tech sector. Even a couple of years ago, the idea of using AI in our daily lives seemed like science fiction. Today, ChatGPT is widely used to provide written content, and visual AI tools such as Midjourney are revolutionising digital art. More advanced versions of the software are not only able to generate content, but to log into other apps and post online.
While we are a long way from AI being capable of destroying humanity, there are still ethical and practical considerations. The most immediate threat is to people’s livelihoods if AI becomes skilled enough to replace them in the workplace.
While AI has some impressive abilities, it cannot replace the human element. An AI tool might be able to write a book, but does the plot make sense and resonate with readers? Are AI-generated news articles using reliable sources? Can it predict the stockmarket, accounting not only for financial metrics, but also human behaviour? Can an AI tool grasp nuance and know when to change direction?
AI could be useful in many industries, but as with any tool, the outcome will depend on the people using it.
Is the UK Stock Market Still Attractive?
A number of companies, including hotel group Intercontinental, CRH, and gambling company Flutter, have started to consider their stock market listing options. All are primarily listed on the UK’s FTSE, but the general view in the market is that regions outside London are proving more attractive for companies’ primary listings.
The US is the obvious target for a potential exodus from the UK. The US stockmarket benefits from greater capital investment, higher valuations, and more liquidity than the London-based stock exchange. Given the US covers over half of the global economy by market share, this is not surprising.
But there are issues in the UK stockmarket itself. UK-based investors (mainly institutional investors and pension funds) have moved away from their home market in favour of more global diversification. Without the added confidence of local investors, global investors are seeing very little reason to bring their money to the UK.
This is not just a UK problem. Stock markets across Europe are struggling to compete with the US for new investment.
The Future of Renewable Energy
The energy crisis has been a constant theme throughout 2022 and into 2023. Reliance on fossil fuels was catching up with us, and Russia’s actions during the Ukraine conflict stifled supplies even further. The finite supply of energy is not a new problem, but pressures on supply, the resulting rise in the cost of living, and growing concern around climate change have brought the issue to the forefront.
Renewable energy was considered the only way forward, but it has taken some time to build infrastructure to the point that it could compete with traditional forms of energy supply. However, for the first time, renewable energy (solar, wind, and hydroelectric) has overtaken fossil fuels, providing around 40% of all electricity supply from October 2022 and March 2023.
This has been partly driven by reduced coal usage and a relatively mild winter, but it is a promising start.
The UK Market
April has been a fairly optimistic month, with the All Companies sector, the FTSE All Share, and the FTSE 100, all producing returns of over 5%. Returns are also positive over the longer term, although growth is skewed towards the larger companies in the indices.
Top performers this month include payment processing provider Network International Holdings, gambling company 888 holdings, and oil services company Petrofac. The latter has suffered during the energy crisis, but has rallied since securing a new contract in Latvia.
The poorest performers include cyber security company NCC Group, travel provider TUI, and De La Rue, which produces banknotes as well as other security-enabled printed items. A reduced demand for printed currency has hit the company heavily.
The Global Outlook
The US and Europe have both produced positive performance this month, although slightly behind the UK.
The US has been lifted by the recent rally in tech stocks as mentioned above. However, we have also seen significant exits from ESG (environmental, social, and governance) labelled funds recently, with around $12.4 billion in outflows over the last year. In contrast, the European market has added over $126 billion to ‘green’ funds. Political differences are thought to be the reason for this discrepancy.
The biggest news in the European market this month is the growth of luxury goods company LVMH to $500 billion. It is the first European company to reach this milestone, and this has not only boosted the stockmarket, but also the value of the Euro currency. The reopening of China has contributed somewhat to global demand for luxury items.
However, the Asia Pacific market itself is showing a negative return this month. China, the dominant player in the region, has seen significant sell-offs in the market, losing value of over $500 billion. This follows higher-than-expected economic growth, and may represent ‘profit-taking’ by major investors. Of course, tensions around US/China relations remain high, and additional restrictions on US investment in China could curb growth.
Please don’t hesitate to contact a member of the team for more information on any of the topics covered.
The value of investments can fall as well as rise and is not guaranteed. Past performance is not a guide to future performance.
The content in this article was correct on 02/05/2023.
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