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Robert Vaudry Investments Blog - May 2017

With the FTSE 100 again reaching record highs, there is a question I'm often asked: Is it sensible to invest now, or should I wait to see if the markets fall again?

As you might expect, there are both advantages and risks.

Firstly, with inflation at more than 2.5%, leaving savings sitting in cash or invested in bonds with next to no interest being paid means, over the long term, their value is being eroded.

The outlook for equities remains positive though, for a number of reasons. Firstly, the market volatility following the election of President Trump and the Brexit vote has lessened, while the solid growth rates in developed economies have continued to provide a healthy backdrop for corporate earnings.

Also, we at Wesleyan plan and invest for the long term - and over that long term, historically, at least, equities outperform other asset classes.

But what about the risks?

A reformed post-Brext EU is likely to be more effective, and could grow much faster than the UK. However, German Chancellor Merkel and French President Macron will have a lot to do to convince Italian voters, who are likely to face an election in 2018, that Europe really can reform and that they should remain a part of it.

In the UK itself, how the General Election result will affect Brexit is also an interesting point. The common narrative is that a large Conservative majority will enable anti-EU MPs to get their way and enact a hard Brexit - one without paying a 'divorce bill' and with full withdrawal of all the European institutions and agreements, including the single market, customs union and free movement - with little or no opposition from the Labour and Lib Dem benches.

However, I see it another way, with a large Tory majority actually making a soft Brexit, which will be the least economically damaging option, more likely.

The new influx of MPs, even if they are resolute eurosceptics in their ranks, may, I believe, find it in their best interests to curry favour with Theresa May as she sets about her legislative agenda with little or no opposition, rather than rock the boat early on in their parliamentary careers by making unrealistic demands about how the UK leaves the European Union.

Meanwhile, over the Atlantic, there is a genuine enthusiasm for President Trump's tax cuts and deregulation, but if they get passed, there's little left in his political locker to continue to excite the markets, and the mood could change quickly. In addition, the scale of the tax cuts could also overheat the US economy, which could lead to an increase in US interest rates, a strengthening of the dollar and a downturn in exports.

These risks do remain some way off, and, as always, the investments team at Wesleyan will keep a close eye on developments and adjust our holdings accordingly to maximise returns.

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