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Global investment markets correct……

Is this an opportunity to selectively enter markets and increase risk exposure and buy the falls for the longer term, or the start of a wider change in sentiment, driven by economic changes and political instability?

FTSE 100   7034.38 (-1.58%) @ 16.15 GMT
FTAS        3865.75 (-1.55%)
DowJ        25262.22 (-1.31%)

Investment Markets – Market sell off goes global

The starting point is to remember that ‘Investments Markets’ are a ‘Market’ driven by buyers and sellers who often react to views that turn negative following a period of strong growth, and sometimes have a ‘herd’ mentality where selling increases, reducing valuations.

We have been studying the views of many leading economic commentators and fund groups over the recent days, and today, where the views are; that the sell off may not have finished but the correction is not expected to be the start of a bear market or a more sinister outlook (at this point at least).

The US market had outperformed strongly this year, so a correction was likely and, in many ways, healthily as the market is reacting as expected.

The US economy is robust with company earnings and sales expected to be solid.  Reporting season is likely to support this position, which kick off with the Banks reporting.

Global Sell off trigger

It seems, according to leading economic commentators, that the sell off has been driven by a mixture of sentiment change, driven by economic changes by central banks and political risk.

Volatility increases have been expected, as the media has communicated this widely for some time, which is what we have also been saying to our clients, remembering that investing should always be viewed as a long-term position, so investors must fully understand that values move ‘down and up’ and sometimes fall heavily or crash.

Investors’ eyes and mindset must focus on the long-term goal, although the investment strategy needs to be flexible in order to accommodate change.

US

President Donald Trump has famously stated that the actions of the Federal Reserve (Fed) and Jerome Powell as being crazy, as Trump is making the assumption that the Fed is tightening monetary policy too quickly.  (Mid term elections are around the corner, that being said!).

The monetary policy created by the Fed creates a hugh impact and effect to the rest of the world…. As the Fed is effectively the worlds’ banker.

US Tech stocks have taken a dent (Amazon, Netflix, Alphabet & Apple and Facebook) following their strong results so far this year, so selective profit taking is logical and normal in an ‘efficient market’.  US Treasury Secretary, Mnuchin, has stated that the “sell off was a correction and not surprising and not a reflection of a wider systemic issue….”  Macro economics and geo-political news remains the dominant financial market driver, with top down news moving investment markets.  President Trump is calling China to account in what is seen as a ‘fair call’ in relation to the unfair practise by China in relation to Trade.  An interview with Felix Zulauf, CEO of Zulauf Consulting, on Bloomberg earlier discusses the Trade Position and outlook.  Zulauf’s view is that he sees the sell off as the beginning of a Structural Bear Market.  This is not consistent with most market views and comments.

https://www.bloomberg.com/news/videos/2018-10-11/zulauf-ceo-sees-selloff-as-beginning-of-a-structural-bear-market-video

In previous communication provided by ourselves, the slowdown forecast by Neil Woodford of Woodford Asset Management now seems to be starting to play out…..

ASIA/CHINA

Zulauf’s comments expect further market falls from emerging markets driven by trade and currency – certainly worth watching.

Asia was down between 4 and 6% earlier after a torrid couple of months.

UK

The UK is expected to be on course for the strongest quarter growth since 2016, so this recent sell off may prove to have been a buying opportunity.

Again, investing must always be seen as for the medium to long term – 5 years plus, so investments can adjust to falls in the markets when not expected.

It is always important to lay out the return goals and risk acceptance when investing, against inflation, so real returns can be measured.  In this way ‘risk adjusted’ returns can be sought and better understood by retail investors.

EUROPE

Has fallen by around 1.2% at the time of writing, mainly in line with the UK with the main concern being higher interest rates and bond yields in the US.

Europe is last to change its position in relation to monetary policy so may be protected on the macro theme somewhat.  The position with Italian Banks and exposure to Turkey is another matter….

Structured Products Kick Outs/Autocalls

A number of structures have kicked out recently (only just) given the level of the index to which they are measured.

The benefit is that the new strike point is likely to be lower for new product entries, so Structured Product buyers may see this as a clear opportunity to purchase new product launches/tranches.

This note is not to be seen as ‘advice’ – advice is always personal to one’s specific needs.

If you have any questions or would like advice, simply get in touch.

We would like to hear from you in order to understand what you value from our information and communication.

Financial communication can be complex, with jargon terms ‘embedded’ – we do our best to speak in a Plain English way, but we are often required to use what is termed jargon as it is everyday financial language.  Your comments will be valued.


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