Keeping Calm on Troubled Waters

Since the end of September volatility has returned to markets. In recent days, some stability has been apparent but the scale of the movements are unwelcome and have been somewhat unnerving for both investors and observers.

Keeping Calm on Troubled Waters
Ermin Fosse

Ermin Fosse

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Please see the comments from Alpha’s Investment team.

What caused the recent global market sell-off?

We believe the main catalyst for global sell-off has been looming most of this year. 2018 was always the expected turning point when central banker stimulus (QE) shifted to tightening (QT). This is all the more significant when you realise that during the drug fuelled era of QE global debt has risen from $173trillion to $250trillion. As central bankers started to withdraw the QE ‘comfort blanket’ it was only natural that markets would be vulnerable to ‘cold turkey’ at some stage. The growth of passive investing has however added to market volatility and possibly exacerbated the correction.   

A major sell-off of risk assets can be a precursor to recession down the road. In this case we believe central bankers, or more specifically that the US Fed has delivered a reality check. The IMF was perhaps the ‘straw that broke the camel’s back’ as it lowered the global economic growth outlook for 2018 and 2019 from 3.9% to 3.7%. That is still supportive of risk assets but the IMF did flag the growing headwinds that remain a challenge to its growth assumptions. Rising interest rates, bond yields, trade tariffs, sanctions, wage inflation and Brexit are all factors that can adversely impact business and consumer confidence.

After a major tremor there are usually a series of aftershocks, but based on the current IMF projections it is certainly not the end of the World, even though it may feel so. Yes, there are challenges but then again when haven’t there been challenges? The one constant in the current uncertainty is that in a rapidly changing world long-term forward strategic planning, asset diversification and careful stock selection remain as important as ever.

What are we doing following the sell-off? 

Our role is to look forward and steer the safest course for our clients regardless of the conditions. What you don’t own is just as important as what you do own.  While not immune from volatility we would like to think that our forward planning of the last 12-months has helped cushion some of the short-term shock. We remain focused on delivering long-term returns, keep calm and carry on investing.    

Market corrections create opportunities. What are we doing right now? Carrying on pretty much as normal, screening for good value investments across asset classes and regions, evaluating growth against value opportunities. We continue to invest in fund managers and management teams that are ‘just getting on with it’.

There are global challenges, but also reasons to remain positive

UK investors have the added challenge of Brexit and Sterling, given the make-up of the equity market. Quite how this plays out is still not certain, although this feels another tricky week for PM Theresa May. 

We take comfort from a number of factors; UK equities, whilst comparatively unloved, are actually one of the cheapest markets in the World, dividend yields and growth are attractive, M&A activity is still healthy and company directors are buying their shares suggesting that it is not the end of the world.

Whilst there are pockets of over-valuation in some markets and sectors, others continue to represent reasonable value given the alternatives.

Should you have any questions or queries on our approach, please do not hesitate to get in touch.

 

This article is distributed for information purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily Ermin Fosse and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. It is not a promotion of Ermin Fosse’s services.

Please contact us before you invest / disinvest. The past is not indicative of future results. When you invest you may not get back what you put in. Errors and omissions excepted.

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