Most of us will be aware that there has been considerable volatility in global stock markets. Not surprisingly October was the worst month for global equities since May 2012. All the major global markets were affected with the Nasdaq [Technology] and the Nikkei [Japan] being the worst hit with drops of over 12%.
Factors which caused the volatility included trade tensions, disappointing earnings in the US, Italy’s budget woes, Brexit negotiation, and rising US interest rates.
Tech giant Amazon disclosed a cautious outlook for Christmas season while Alphabet [Google] revealed that its business has slowed more than expected in the third quarter. The US and China’s tit-for-tat actions in their trade war has been showing no end in sight which worries investors going to 2019. The US economy is still growing well but interest rates are now rising and likely to go higher which is another negative normally for markets.
In the Eurozone, focus is on politics. The European Union has rejected the budget plan submitted by Italy which its deficit is now at a staggering two trillion euros. Angela Merkel also announced her last term as German chancellor after her party was defeated in the state election and could provide instability in Germany and the region. There is also no sign of a breakthrough in the Brexit deal and the deadline is fast approaching which could lead to a hard Brexit.
In Asia, slowdown in China is a concern as it recorded 6.5% GDP, lower than the consensus. If there is further escalation in the trade war this will impact growth prospects moving forward. Emerging markets with high dollar-denominated debts have also suffered due to the increase in US interest rate.
The last few weeks markets have experienced significant volatility with global markets all falling. These set backs are all ‘normal activity’ for markets and happen from time to time. Predicting when they will happen or when the volatility will end is impossible. Every market correction always throws up opportunities as when markets fall everything goes down with the market.
Our core fund managers now see good value in certain countries and sectors of the market and we are now working with them and reviewing client holdings. We have written to many of you recently with suggestions so you are well placed to benefit when these sectors pick up. At the moment volatility has dropped slightly but may pick up again.
We have talked with many fund managers over the past month or more and they like we agree that if you are investing for the long term equities are still the preferred investment. Rising interest rates is killing bond markets and will continue to offer poor value as interest rates rise. Cash still offers no real return above inflation and absolute funds have underperformed for a decade or more and this trend is unlikely to be reversed.
It is important to remember during these times that market volatility is normal as the chart below demonstrates. For those of you investing regularly volatility has a smaller impact but the chart below shows that even for those who invested earlier in the year, long term investors will almost certainly do significantly better than cash.
MSCI World Index Performance
IMPORTANT INFORMATION
Past performance does not guarantee future results. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. All investments involve risks including the risk of possible loss of principal.
The views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page.
Information herein is believed to be reliable, but Astra do not warrant its completeness or accuracy. This material is intended to be for information purposes only.
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