Quarter 3 saw the US bull market continue to rally boosted by tax cuts and fiscal stimulus. The Fed’s continued quantitative tightening led to a rise in the price of the dollar which then spelled trouble for emerging markets who borrow in dollars. We saw a significant outflow of investments away from them following China’s trade wars with the US, Turkey’s political turmoil and consequent drop in the value of the lira, and Argentina’s currency sliding and inflation rising.
Uncertainty surrounding Brexit negotiations and the increasing prospect of the UK leaving the EU without a deal had their negative effect on investor sentiment. UK equity funds experienced monthly net retail outflows of £532m, making London’s market the least popular among private clients and their advisers.
Turbulent Italian politics also sent tremors through global markets earlier this year. Investors have been hammering European stocks and bonds ever since, betting more trouble lies ahead. Fears that Italy’s government could announce a budget this autumn that puts the country’s debt on an unsustainable course and so amplify tensions with Brussels have come true setting the mood towards all European stocks.
Our current view is that despite the recent political turmoil, the underlying picture is overall fundamentally still positive. We do not expect the current bull market to end in the next quarter and are therefore making only moderate changes to our investment models to better position them for the upcoming volatility. And volatile the markets are expected to be. The political noise created by Brexit as well as Trump’s trade wars make the markets very unpredictable, and as we know, the markets do not like uncertainty.
Looking into the global markets as a whole, the main developments we’ll be keeping an eye on in quarter 4 are the US interest rate policy, China’s response to a slowing economy and the implications from Italy’s budget deficit raise, as well as the turbulent emerging markets.
Please note, our Investment Commentary is our view of markets and does not constitute investment advice. Past performance is not necessarily an indication of future returns; the value of investments and any income from them is not guaranteed and can fall as well as rise. Overseas investments are affected by currency movements and exchange rates. If you would like investment advice on your individual circumstances, please do not hesitate to get in touch.