Whitechurch Asset Views October 2016 - Monthly Review And Approach To Global Stockmarkets And Asset Classes
Risk assets remained in the ascendency in September with the majority of major global stockmarkets, broadly flat or posting modest gains. This has resulted in an exceptional third quarter for stockmarket investors with the period characterised by strong market rises and low volatility. We are not sure many would have predicted this would be the immediate reaction following the Brexit vote and the summer months have provided a perfect example of why time in the markets is better than timing markets.
Central bank policymakers took centre stage during the month, although with a marked difference in approach.
In the US, the Federal Reserve pushed back the likelihood of an interest rate hike until December. In Japan there were innovative measures announced to stimulate the economy, whilst the European Central bank disappointed investors with no further easing immediately. The Bank of England took a wait and see approach, with the domestic economy proving Brexit-proof (for now).
The UK stockmarket continued to perform well, providing the strongest returns of major global markets with better than expected economic data and further sterling weakness boosting exporters. In overseas markets, the US and Europe finished broadly flat and Japan posted a modest gain, although currency movements continued to prove positive for sterling investors with overseas assets. Asia and Emerging Markets have remained popular with investors.
In terms of other asset classes, commodities were the best performer in September with the Bloomberg Commodity Index climbing 3.1% during the month, posting its first increase since June. This was driven by the oil price rallying strongly at the end of the month as OPEC agreed to limit supply.
In terms of fixed interest, the recent rally in bond markets tailed off and gilts were sold off as solid economic figures reduced chances of a further cut in interest rates in the near-term. Overseas, bond markets were broadly flat, with mixed messages from policymakers.
Investors in UK commercial property funds saw some respite, with a number of the open ended property funds that had suspended dealing after the referendum announcing that they were re-opening for dealing or signalling their intention to do so over the coming weeks.
We maintain a bias towards risk assets versus traditional safe haven Government bonds or cash which offer little reward. We believe that global growth will remain supported by monetary and increasingly, fiscal policies. Versus other asset classes equities continue to offer attractive yields which will support demand whilst bond yields remain so low.
When stockmarkets are hitting new highs it is important not to become too complacent. We are mindful that the level of global economic and political uncertainty, could easily see sentiment turn. But there is also a healthy amount of cash on the side-lines that would temper any market falls. As a result, we remain broadly positive on equities with the core of our stockmarket exposure remaining in equity income, both at home and overseas. For growth opportunities we see a renewed impetus for Asia and Emerging Markets.
Although there could be an upturn in inflationary pressures, it is starting from very low levels and we see little scope for any material monetary policy tightening in the foreseeable future. Therefore, fixed interest markets are likely to be supported although we will continue to avoid the highest quality Government bonds that offer little, no or negative yields and maintain a preference for corporate bonds that can provide a real return.