Redmayne Bentley Market Round Up

Tech stocks dwindled last week as Treasury yield increases and rising oil prices created an upward pressure on inflation, unsurprisingly affecting stocks with growing future revenue expectations. ‘Growth’ stocks have a higher sensitivity to bond yields (i.e., the cost of debt), and this all boils down to expectations; the prime motivation for investing in growth stocks is the story that a business sells to the investors. Usually, they are less profitable in their present state and instead have the potential to grow future revenues and profit. Because these revenues have not yet materialised it makes their valuations higher and, ultimately, more vulnerable to a dynamic economic environment. Furthermore, these are usually highly indebted companies and a slight change to their cost of servicing debt can adversely affect their ability to grow.

Speaking of technology stocks, Facebook was in a bit of trouble last week. An insider blew the whistle, claiming the company buried internally commissioned research on the impact of its services. This means yet another lawsuit for Facebook, with the report claiming the platform has an effect on the mental health of younger users. The report, and its subsequent quashing, has exposed the priorities of the company, offering a fresh blow to the industry’s reputation.

In the UK, the leading UK 100 index has recently become a less favoured market for companies looking for capital. With a hot IPO market around the world, the index has taken a back seat in current trends and, as a result, is undergoing a period of underperformance and stagnation against its global peers. Its leading cousin across the pond, the US S&P 500, has performed exceptionally, owing to its composition of more interesting technology companies. On the other hand, the UK large cap space has become crowded with traditional titans of the old economy, at the end of their business cycle. The problem London now has is that exciting companies are unable to attract enough investors, giving a negative impression to other businesses wanting to use public markets - creating a vicious cycle. Nevertheless, the hope is that the easing of listing rules announced by the Chancellor in the Spring will offer some hope of reviving London’s once great status in global markets.  

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.