The Investment Committee in charge of our Gaia portfolios met today to review recent market events. After a strong ‘Santa Rally’ into the end of 2023, markets struggled for direction in January, and all the portfolios lost a little ground.
Fixed Interest had a difficult month in general. Bond markets fell, as investors realised that they had probably got ahead of themselves in their expectations of when interest rates might be cut. Fortunately, as we had felt this was the case for a while, we had a meaningful tilt towards shorter-dated credit, which helped to mitigate much of the pain.
Within equities, the picture was mixed. Our Japanese exposure performed well. However, the effect was hard to see unless one drilled down into the data set, as it is held though Asia funds that were hurt by China’s continued troubles. China remains a bone of contention. The terrible performance of the last two years has made Chinese shares very cheap by long-term historical averages. However, the possibility that the economy has undergone a structural change for the worse, that makes these averages unhelpful markers, cannot be dismissed. Recent meetings with fund managers have provided a wide range of different views on the situation, emphasising how hard it is to answer the key question: is China a value opportunity, or a value trap? We continue to work hard to get clarity on this important issue. In the meantime, that fact that we hold our exposure through managers with a focus on quality provides hope that, even if overall sentiment does not turn for some time, investors will start to focus on the genuinely good companies that exist, and not price everything equally.
Indeed, as we move through the early part of 2024, we believe that this focus on quality will be important in all regions. With the era of cheap money gone, well-run businesses with lower debt requirements and strong cashflows will be better positioned to take advantage of the soft-landing that we still believe is achievable, whilst also being more resilient should we be wrong, and recession follow.
In summary, we made no changes to the portfolios, but will continue to watch events iunfold, with a particular eye on China.
