Investments: Business article by CHRIS BELL, senior investment manager, WHIreland International in the Isle of Man.

After the fantastic weather we have experienced and the recently introduced hosepipe ban, comparisons with the long, hot summer of 1976 are being drawn.

Many parts of the UK have experienced even higher temperatures, low rainfall and moorland fires.

This is clearly not just an isolated occurrence.

Europe has seen record temperatures with 48 degrees registered in Portugal; extensive wildfires have ravaged California, and Japan has also experienced life threatening conditions.

Starkly, nine of the hottest 10 years on record have happened since the beginning of the 21st century.

The climate is a key factor that companies are unable to influence and there are winners and losers in such a scenario.

The summer months also see the ‘market seasonality’ effect, where traditionally stock market volumes fall away and volatility can actually pick up.

Transport has been negatively impacted, with areas such as the Eurotunnel suffering air conditioning failure on some of its trains.

Other rail companies have had to deal with buckled rails and overcrowding.

This creates not only delays and higher costs in the short term, but also opportunities in the longer term for companies to innovate new solutions.

Investors will also wonder about the cause and effect aspect of the transport sector. It is responsible for nearly a quarter of the global CO2 emissions and the focus going forwards will be on emerging battery technologies.

Certain parts of the retail sector benefit tremendously, notably some of the garden centres and DIY sheds that sell barbecues/garden furniture and watering systems.

In the food sector, there is clearly a boost for foodstuffs such as ice cream and sausages, whereas not many families will be tucking in to the traditional Sunday roast!

On the negative side shoppers are unlikely to be looking for household goods such as carpets or curtains, and certain clothing purchases will also be poor.

These are major factors to consider and no doubt we will see a number of weather-related profit warnings as 2018 progresses.

Wet led pubs in the leisure sector have also enjoyed fantastic conditions, boosted further by the World Cup.

On average it looks as though drinks volumes were up 7.5%, although there has been a one-off negative impact with the shortage in C02 gas; some food offerings have also suffered.

There will no doubt be fewer visits to the cinema or ten-pin bowling alleys which always do well in wet weather.

The holiday sector bosses will also have mixed feelings with those focused on domestic ‘staycations’, delighted with fully booked campsites and busy promenades.

Those companies hoping to capitalise on last minute hot getaways will be disappointed and it could also impact the shape of 2019 bookings.

The government will be monitoring domestic inflation levels as greater amounts of energy are used, and food prices will rise as farmers lose crops and supermarkets import greater amounts.

Interestingly, researchers have long wondered whether there was a link between the weather and stock market returns.

The theory goes that sunshine will boost returns whilst poor weather makes investors question the level of the indices. It will come as little surprise that no conclusive correlation was established; indeed the day of the week could actually have more bearing! What is more established is the seasonal impact on investment markets.

The beginning of the calendar year traditionally sees a rally in equities as investors demonstrate optimism for the coming year.

Quarter ends can also see a certain amount of ‘window dressing’, as investment managers position funds for reporting periods.

The summer months used to see the important investors head off around the globe on their extended holidays, leaving the more junior members of the team in charge.

Whilst activity typically falls off there have been a number of volatile moves that have begun to shake this theory in recent years.

Three years ago was a particularly nasty August, when global equity markets plunged nearly 10% after China announced unexpected currency devaluation.

Indeed, it was this summer volatility that ultimately delayed Janet Yellen increasing interest rates in the September Federal Reserve meeting. August 2011 was probably even more brutal with twin concerns of European contagion combined with fears over the US debt ceiling.

For instance, the FTSE 100 fell from over more than 5,900 on July 26 to under 4,800 on August 9.

Interestingly investors have viewed the period from October through April as the ‘good’ part of the year and researchers have shown that virtually all the gains on the main US equity indices have come in these months.

So, without putting a dampener on the family holidays, we suggest that you quietly keep a watchful eye on your investments!