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The Month In Markets – October 2021

October can be a stormy month for markets, but not this year: Global equities strolled to a 4% return in a calm and orderly fashion. In the absence of headline-grabbing tempests to describe then, I’ll instead use the month’s movements to set out one of the two key debates that currently vex us as we discuss and shape your portfolio.

If those two debates had titles, they’d be: “Stock Markets: Take the Money and Run?”; and “Inflation Vs Deflation”.

We’ll look at the first this month. Stock markets have had a cracking October, that much is clear. Making 4% while your bank account pays nothing is a great result. And it’s not just this month. So far in 2021 global markets have made nearly 20%. Extend that to two years, to now include the worst global pandemic since the Spanish Flu of 1918, the same markets have returned a head-scratching 38%. While if you’d invested ten years back (no mean feat, as back then the world was fretting over the eurozone crisis), you’d be sitting on a return of 261% today.

These are exciting numbers. But we’ve all been around too long, and been to too many parties, to assume we can enjoy that much gain without real-life dishing out some pain to balance things out. In investing terms, this instinctively makes us want to take profits and (in theory) reduce risk by cutting your exposure to equities, and adding more to defensive assets, such as cash or bonds.

And yet we haven’t. Not yet, anyway. We’ve actually been having the exact same debate for the entire (admittedly short) life of the branch; for all that time markets have been sat atop incredible gains (albeit marginally less incredible than today’s). But we decided, thankfully, to stay put. Why?

I think it helps to compare how different this decision is today to 15 years ago. If you’d have had this uneasy, vertiginous feeling at the tail end of 2006, you would still have faced a tricky choice, but then the only cost of running to cash was the cost of a missed opportunity.

The world has changed: in 2006 there were decent, obvious, and risk-free alternatives to shares – most obviously cash (Icelandic banks aside). If you’d have sold your equities and kept the cash, you still would have earned interest of around 5% (unimaginable today, but that was the UK’s base rate as 2006 ended).  At the same time, the UK’s inflation rate (CPI) was only 1.6%. So, very roughly, even if equities continued to rise (which, for at least another six months, they did), your wealth would, based on those numbers, still grow by about 3.4% per year (interest less inflation).

Now compare that to today. The base rate is 0.1%, which is basically nothing. So that decision to switch to cash, had you made it last month, would have meant you missing out on the equivalent of 40 years of interest, which is what global equities made in October.

Furthermore, the latest CPI number was 2.9%. So you can assume that, instead of growing, your cash-based wealth has actually shrunk by about 2.8% over the last year (interest less inflation again). And, as long as inflation remains higher than interest rates, it will continue to shrink too. Just as it would have done for the lion’s share of the last 13 years, during which time inflation was persistently higher than interest rates.

This is why we don’t take this decision lightly. Much as our conservative instincts make us cautious after a long rally, we’re also wary that putting you into cash today could be a trap: that we’d be condemning you to an uncomfortable spell on the sidelines, watching as the spending power of that cash ebbs while the value of other assets – that you no longer hold – rises.

Against this, however, is the truth that, much as we think equities are the best place to invest over the long term, they offer no guarantee, much less comfort, that they won’t stumble along the way.

2020 illustrated this rock-and-a-hard-place problem neatly. Take yourself back to the start of that pandemic-ridden year. If two advisers had approached you, one predicting markets would crash by more than 25% within the next 12 months, while the other forecasts a total return of +12% for the year; which one should you have gone with?

Well, they were both right: markets plummeted by 26% in March as lockdowns took hold, but by the end of the year they had more than recovered, finishing with a return of 12%. (The actual answer to that question, though, is you shouldn’t have chosen either of them: if any adviser tells you precisely what the next year will hold, you should run like the wind. But that’s another story.)

That, in a nutshell, is the conundrum we face today. We all agree that – over the long term – equities offer not just the best opportunity to beat inflation, but to actually grow the spending power of your wealth too. But, in the short term, they are susceptible to lurching and entirely unpredictable drops in price, which will put you through the emotional wringer (something we are obviously keen for you to avoid).

But we can also all see that, while many of the classical ‘safe-haven’ assets, like cash or bonds, might protect you from massive waves in the short term, over the longer term they put you at serious risk of slowly sinking, as your wealth’s spending power is eaten away by inflation.

It’s our job to balance those considerations, and with them your portfolio. It’s no use us putting you in the best returning investment over the next 10 years if the ride is so unbearably rough that you abandon ship along the way (that’s the last of the nautical metaphors, I promise). In doing our job we consider and balance many factors, such as the valuations of different asset classes and the wider economic and social environment, and then marry those to your own personal need for returns and appetite for risk.

So that’s what we’ll continue to do. After a bumper month like October, you can assume we’re more likely to reduce risk than add to it. But it’s a team decision, and it’s never as simple as “markets have gone up, so sell”. That would be too easy: markets, like life, aren’t that kind.

Simon Evan-Cook
(On Behalf of Raymond James Barbican)

 

Risk warning: Opinions constitute our judgement as of this date and are subject to change without warning. With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. Raymond James Investment Services Ltd nor any connect company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon any information contained in this article. Past performance is not a reliable indicator of future results.

Weekly Note

The Week in Markets – 23 October – 29 October

Right. I didn’t want to do this, but we need to talk about gilts. Because in a week in which most market movements were all a bit “meh”, gilts (a.k.a. UK Government Bonds) stand out as having had an unusually dramatic run. What happened?! I hear you gasp. Well – hold onto your hats – on Thursday the UK’s 10-Year Gilt yield dropped by 0.13%!

Yes; you’re right. It is odd what passes for drama in the investment world. It’s hardly Cup-Final penalties, is it? This is why I avoid writing about gilts. It takes me back to the confusing days when I was learning my trade, sat next to grizzled professionals who’d take an apparently bland statement like that and read a Nabokov novel’s worth of meaning into it (I just nodded and kept quiet).

But today I grasp that nettle. Firstly the size of the move: It doesn’t sound like much, but when you start with not much, not much can make a big difference. And the gilt yield started the day at 1.11%, and dropped to 0.98%. That equated to a c.2% move in the gilt index over the day – the largest part of an almost 4% move over the week. Remember that bonds are supposed to be the tortoises to the hares that are shares (now there’s a Dr Seuss book just begging to be written). But UK equities only shifted by 0.9% on the week, a polarity reversal that tells you something unusual happened.

That was the size of move, now let’s talk direction. Yields falling sounds like bad news, right? We don’t like it when things fall. But “yield” is on the other side of a simple equation to “price”. So when yields have dropped, it means prices have risen (the third part of that equation is “income”, which in gilts’ home world of fixed income is – as the name suggests – fixed)(unless it’s an index-linked gilt, but let’s not go there). So, can we take it that prices rising by 4% in a week is actually good news?

Nope. OK; it is if you hold gilts. But one of the main reasons for holding gilts is that their prices go up when a piece of bad news makes most other markets go down. This is because, in a recession, they’re seen as a safer place to park cash than shares, so if they think there’s trouble ahead, investors sell shares and buy gilts. So when you see that gilt yields have fallen, and therefore that their prices have risen, you can usually assume it means bad news.

So this was bad news after all? Well, maybe. Thursday was Budget day, so we might assume that markets hated the budget, believing it’s more likely to hurt economic growth than help it. I think there’s some truth to that: UK shares, whose prices do drop on bad news, fell on the day. However, it’s not that simple (I’m really sorry about this). Rishi Sunak also announced that, because economic growth had been better than he’d feared (good news!), he wouldn’t need to issue as many new gilts as he’d thought, thereby reducing their supply (economics 101; lower supply equals higher prices).

So, there you have it (clear as mud): Hopefully (but not entirely) a one-off technical thing, which means I can return to the usually-more-interesting, and simple, movements of share prices instead.

Have a great weekend,

Simon Evan-Cook
(On Behalf of Raymond James Barbican)

 

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.

Weekly Note

The Week In Markets – 16 October – 22 October

Instead of headlines proclaiming “10% wiped from value of computer giant”, “S&P closes at record high” was the headline splashed across many investment outlets on Friday morning. 

After ebbing and flowing for the last six weeks, the US S&P 500 index closed at a new all-time high on Thursday evening. It may surprise many to learn that this was actually the 55th all-time high of 2021 for the large-cap bourse. Investors have been encouraged by a strong start to Q3 earnings season, with most companies that have reported beating earnings estimates. It wasn’t the case of “a rising tide lifts all boats” however, as IBM’s share price fell around 9.5% on Thursday after missing revenue targets. 

Data released on Wednesday showed that UK inflation slipped to 3.1% in September, from 3.2% in August. The slight dip has done little to deter investors’ from believing that the UK will be the first major central bank to lift interest rates. While many of us have become accustomed to falling rates over the last decade or so, 2021 has bucked that trend with countries such as South Korea, Norway, Brazil and Chile already hiking interest rates. 

Evergrande, the Chinese property behemoth which caused turbulence in markets in September, returned to the forefront of investors’ minds this week as its proposed $2.6bn asset sale was abandoned, stoking fears of the company’s ability to meet debt obligations without this injection of cash. While the exposure to China in our portfolios is minimal, China is now the second-largest economy in the world and therefore what can appear as domestic issues can spill over into global markets and as such a situation we continue to monitor.

With inflation fears and a more optimistic growth outlook returning, bond yields continued their march higher this week. Despite the moves, the German 10-yr bund still has a negative yield of around 0.08%, although this is the highest level it has been over the last 12 months. 

As we look ahead to next week the big news on domestic shores is likely to come from the Autumn Budget, taking place on 27th October. The budget can create volatility in UK stocks, particularly if there are unexpected announcements. It is something we will follow closely and look forward to covering next week. As always, we will be looking behind the headlines to get to the detail and understand the impact.

Andy Triggs | Head of Investments, Raymond James, Barbican

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

Weekly Note

The Week in Markets – 9 – 15 October

If you find discussions of employment rates and wage inflation uninteresting or even dare I say it boring you have our sympathy. I’ve heard that many people in the Treasury have a similar view. However, their importance to the global economy and in turn to our clients cannot be underestimated, so I would ask you to persist and read on.

With that in mind, we will start with the UK; unemployment dropped to 4.5% and average weekly earnings were 7.2% higher compared to 12 months ago. Many believe this will be enough to force the BoE to raise interest rates, possibly as soon as December. However, the slight complication here is that these figures are skewed by both the furlough scheme, which closed at the end of September, and the fact that we are comparing wages to last year when they were heavily impacted by COVID-19. The reaction to this data in bond markets was muted and we have seen yields fall (prices rise) this week across most developed nations following a period of rising yields. Staying with the UK economy, GDP data highlighted that the economy grew by 0.4% in August and is now only 0.8% below the level it was pre-COVID in February 2020.

Inflation has been a topic we have covered frequently over recent weeks and Wednesday’s US CPI figure of 5.4% means we need to spend a bit more time on the subject. If we drill down into what was contributing to the higher than expected inflation print this week, we can see that rent and food costs were key drivers. For the average person, this can pose problems as both shelter and food are typically necessity goods that consumers simply must buy. Higher prices here will mean many people need to cut back spending in other areas of the economy. It may also encourage individuals to push for higher wages or look to move to higher-paid jobs to make sure their spending power keeps up with inflation.

The International Monetary Fund (IMF) released their latest World Economic Outlook report this week. For readers that like detail, the full report can be found on the IMF website – but be warned it is 172 pages long! In brief, the IMF still see the global economy in recovery mode, even if the delta variant has caused COVID-19 induced problems to persist. They did slightly downgrade their world growth expectations for 2021 from 6% to 5.9%, citing COVID-19 and supply disruptions as two causes. On the positive side of things, a firmer commodity pricing environment should see better than expected growth from the commodity-exporting nations.

In this data-heavy week, we have seen most global equity bourses move higher. The UK market has been particularly strong, driven by a firming commodity price environment as well as a high weighting to financials, which have performed well on the prospect of interest rate rises. Our portfolios are global in nature, and while we are exposed to markets such as the US and themes including technology, we also have meaningful exposure to the UK market and include themes like resources, which have been strong this week.

Andy Triggs | Head of Investments, Raymond James, Barbican

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

Weekly Note

The Week in Markets – 2 – 8 October

The challenge in writing a weekly note is that most subjects don’t start and finish in a seven-day period; economies and markets are fluid and continuous, with events taking weeks, months or even years to play out. Over the last couple of weeks, we have written about inflation and its effect on bond markets, of rising gas prices and of a lack of direction in equity markets and these subjects are still as relevant this week. For good measure, we can now also add to the mix a Facebook blackout and US debt ceiling concerns to the headlines.

New Chief Economist for the Bank of England (BoE), Huw Pill, warned this week that inflation in the UK may be higher and last longer than originally anticipated, in part driven by rising energy prices and a continued global supply shortage. Earlier in the year investors assigned around a 10% probability to UK interest rates rising by March 2022, this week the probability had risen to around 90%. The likelihood of two interest rate hikes by May 2022 has moved from less than 10% just four months ago to around 80% today. Whether we are witnessing a structural shift to sustained higher interest rates and inflation, or whether this will be a short-term hiking cycle (more akin to 2018) is unclear currently. As investors, we need to think carefully about portfolio construction and the mix of assets we would want to hold if the 30+ year bull market in bonds is finally over.

Facebook has evolved into so much more than just a social-media company and while a few hours break from Facebook, Whatsapp and Instagram may have been welcome by many, it was a source of lost revenue not only for the company, but for many businesses who use their platform for sales and marketing. It is estimated that it cost the technology giant around $100m in lost revenue as well as wiping off nearly $50bn of equity value at one point. The outage interrupted business, Government communications and, in some developing countries blocked access to the wider internet. It was interesting to read that due to the firm’s work from home policy many remote engineers were not able to communicate with the staff in the data centres and caused the crisis to drag on longer than it should. Some reports suggested that the outage even locked staff out of buildings and data rooms as the system linking door security to work permits failed. The domino effect both locally and globally should be a wake-up call.

On Friday we woke to the news that the US Senate voted in favour of extending the debt ceiling, allowing the nation to meet its liabilities and continue to borrow. Janet Yellen was vocal in the run-up to the vote, stressing that if the debt ceiling was not extended it would have severe implications for the US economy.

US non-farm payroll jobs data was released on Friday afternoon. The data showed 194,000 jobs had been added to the economy in September, below estimates of 500,000. Unemployment in the US fell to 4.8% and with a considerable amount of job openings coupled with elevated consumer demand we can expect unemployment to fall further over the remainder of 2021.

Further East (or West depending on which direction you are travelling and from where) China and Russia both appear to continue to be influencing a rise in gas prices. Russia is rumoured to be restricting gas supplies as part of a strategy to encourage EU countries to approve Nord Stream 2; their new Baltic Sea pipeline. Gazprom, Russia’s gas export monopoly supplies a staggering 35% of European gas needs. It’s alarming how reliant Europe has become on one nation (Russia) for its gas needs. In January, China recorded its lowest temperatures since the 1960s leading to widespread power cuts. To avoid it happening again this winter, the Xi government has ordered its state-owned energy firms to secure gas supplies for this winter “at all costs” which is fuelling the energy price crisis across the globe.

This week’s news and recent events highlight the increasing reliance we have on the Superpowers of China, Russia and the US as well as the superpowers of the technology giants; something we need to keep a watchful eye on as individuals, business owners and investment managers.

Andy Triggs | Head of Investments, Raymond James, Barbican

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

THE WORLD AWAKENS

As we sit atop our prosperous peak, admiring the views of the fastest economic growth since 1984, the best start to a bull market, and the record-breaking quarter of earnings growth, it’s wise to remember that not too long ago we began our uphill journey from the depths of the COVID-19 ravine. Often, the best views come after the hardest climbs. So now it’s time to catch our breath and peer over the horizon at what’s to come as we begin our descent from this peak. However, just as the summit of one mountain can become the base of another, the investment landscape goes on indefinitely, which makes adhering to a disciplined investment strategy of the utmost importance.

Weekly Note

The Week In Markets – 25 September – 1 October

Persistent or transitory inflation, that is the question. It’s actually been the question for most of the year and this week was no different, as it appeared the persistent inflation bulls had the upper hand, fighting back after the summer months were won by the transitory inflation camp.

The obvious short-term forces of supply chain bottlenecks, energy shortages and a rebound in demand from the pandemic induced lows are helping stoke inflation, but the longer-term inputs of a move away from globalisation, continued government spending and wage inflation are providing fuel for the persistent inflation believers. The higher inflation expectations have impacted markets this week. US government bond yields have risen (prices therefore fall) to levels last seen in June, while UK gilts and European government bonds have also seen their yields move higher. Equity markets have been bumpy too; stocks which are more correlated with bonds have retreated, while sectors such as energy and financials have proved more resilient.

German elections took place on Sunday, with Angela Merkel stepping aside after 16 years as Chancellor. Her party, the Christian Democratic Union, performed poorly, losing significant votes from previous elections. With no clear party winner, a coalition government is likely, yet we still do not know how that will look. Given Germany’s economic power within European markets will be watching proceedings very closely indeed. 

On domestic shores the petrol shortage has continued to rumble on, snatching the headlines from the gas crisis that we’ve also been experiencing. The energy crisis facing the UK is fast becoming a global problem, hitting the world’s second-largest economy, China. Reports of factory closures and power rationing will undoubtedly feed through to weaker economic data in the coming months while also increasing supply issues, given China’s role as the manufacturing heartbeat of the global economy. 

There was some positive news to end the week, with the UK economy growing faster than anticipated in Q2. Data on consumer savings also highlighted that we are continuing to save at elevated rates. These savings will likely be spent in the real economy as consumer confidence returns, meaning we could see further upside surprises to UK growth. Increasing consumer demand at a time when supply issues are apparent would do little to dampen the persistent inflation camp!

Andy Triggs | Head of Investments, Raymond James, Barbican

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

Weekly Note

The Week in Markets 18 – 24 September

After a fairly benign summer period, all of a sudden there feels a lot to cover in the weekly note. From gas shortages to Chinese property concerns to hawkish central banks, it’s all happened this week. Despite many of these headlines, equity markets have climbed the wall of worry in the middle of the week, quickly rebounding from the sell-off on Monday.

On domestic shores the UK gas crisis continued with further energy companies collapsing, meaning nearly two million homes have lost their supplier this year. The cost of gas for suppliers has spiked by more than 250% in 2021 and, unable to pass this increase straight through to customers, many firms have run into difficulties. While there are short-term drivers for the rise in gas prices, including unusually low wind speeds, a lack of investment in the gas industry has also caused structural problems. It’s an interesting case study and one we may witness again over the next decade with oil and commodity prices. We have been through a period of underinvestment in these sectors, for various reasons, and while the hope and target is to move away from fossil fuels, we have to question whether the infrastructure and technology are currently in place to do this. If not, we may find that our planet still relies on oil at a time when there has been little investment in the space, which is likely to lead to supply shortages and spikes in prices. For investors, this can create opportunities. 

It was a busy week for central banks, with both the UK and the US deciding to keep interest rates at current levels. While this may sound fairly dull, the language and messaging used by central banks has impacted the bond markets. Both were fairly hawkish in their statements, showing concerns around inflation, which may lead to them increasing interest rates earlier than the market has priced in. Towards the end of the week, we saw government bond yields rise (and therefore prices fall). It may be worth noting that Norway increased their interest rates by 0.25% – the first G10 nation to do so – which acts as a reminder that ultra-low interest rates may begin to normalise over time. 

Chinese equity investors have had a rough ride in 2021 as political and regulatory risk has come to the fore and dented many sectors. Despite China being the second-largest economy in the world, we have always been mindful of the weaker corporate governance and potential regulatory risk; this has held us back from having a dedicated China exposure in portfolios. Chinese property firm Evergrande appeared to miss interest payments on a portion of its bonds this week, stoking fears that a default is imminent. The company has a significant amount of debt and there are concerns that this could spill over to other sectors, such is the reach of the debt pile. This comes at a time when we have seen the Chinese government clampdown on the education, technology and healthcare sectors as China pursues a ‘common prosperity’ goal. While the fall in the Chinese stock market is of interest, it is very hard to know how deep or far this government intervention will go, and as such we are happy to allow our emerging market fund managers to use their expertise and be very selective with their allocations to China. 

The issues facing global markets this week act as a timely reminder that risks can appear quickly and often without warning. Portfolio diversification is critical to help mitigate risk and smooth returns and we will continue to focus on this. 

Andy Triggs | Head of Investments, Raymond James, Barbican

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

Weekly Note

The Week In Markets – 10 – 17 September

OK: Another tranquil week to describe. The Chinese authorities have had another pop at one of their big industries, this time, gambling companies in Macau. That caused their share prices to plummet and further dented sentiment about the wider Chinese market. In contrast, Japanese shares, perhaps benefiting from flattery by comparison, had another good week. Other than that; all quiet on the markets front.

But, much as I say not much happened, for all we know, maybe it did. Markets have a lot in common with other complex phenomena, such as earthquakes or forest fires. Much as we think they should be predictable, they constantly confound humanity’s best attempts to forecast them.
This is because earthquakes and forest fires happen far more frequently than we assume. In the case of earthquakes, they’re happening all the time. But almost all tremors are so tiny we don’t feel them, so we don’t obsess about trying to predict them.

However, although the overwhelming majority amount to nothing, any one of these tremors could trigger others, which then trigger even more, and so on until we have a major quake (almost like the first tremor has “gone viral”). As Mark Buchanan put it in his excellent book – ‘Ubiquity’; “when it starts, an earthquake doesn’t know how big it will get.” This is why they’re impossible to predict.

And so it is with market sell-offs, which share the same mathematical signature as earthquakes and forest fires, and even wars. That’s something called a ‘power law’, which roughly means that there are exponentially fewer big wars/earthquakes/market crashes than there are medium ones and exponentially fewer medium ones than there are tiddlers.

Put another way, we see market sell-offs hundreds of times every day, we just don’t care because they’re tiny. But, like earthquakes, when a sell-off starts it doesn’t know how big it will get. So China causing investors to sell Casino shares might mean they have to sell other shares too, which causes even more investors to pull out, which then ripples out to a global crash. Or it might spark a rally in Japanese shares. Or it could just peter out to nothing. We won’t know until we know.

Taken the wrong way, this could be scary: We like to think our world is predictable, even if, deep down, we know it isn’t. But markets have always been this way. That’s why we use tried and trusted safety measures like diversification. Concentrating our money in just one company, market, or asset class makes us more vulnerable to unforeseen events. But using a selection of diversified funds and asset classes as we do (you hold, for example, a modest amount of Chinese and Japanese shares), we’re confident we can survive the small, medium or large tremors, and bounce back stronger afterwards too.

For now though, all is quiet. So you can forget markets – and earthquakes – and enjoy your weekend.

Simon Evan-Cook
(On Behalf of Raymond James Barbican)

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

Weekly Note

The Week in Markets – 4 – 10 September

Global equities reversed this week, ending a long winning run. When markets have dropped, but there’s no clear reason why, it’s traditional for us market reporters to put it down to “profit-taking” then break early for lunch. But on this occasion, it’s worth taking a quick tour of the regions, as differing trends are playing out.

To understand what’s happened to a global equity index, the first place to look is always the US. American equities punch well above their weight in world stock markets: while their economy makes up less than a third of the globe’s, their companies represent double that amount in a global equity index. So they usually dictate the global tone. This week the consensus is that investors are worrying about the Federal Reserve beginning to slow the pace of stimulus. It isn’t yet overly clear why they’re worrying this week more than last, but that’s the mystery of markets for you.

If investors in U.S. equities are worried about this, then holders of British and Continental European shares are even more concerned: share prices on this side of The Pond have had an altogether soggier week. Looking at the winners and losers in the fund world, “value” funds have fared worse than “growth” funds, which implies investors are becoming less convinced that broad-based economic recovery and/or inflation are what we’re headed for.
The stand-out market this week has been Japan. For most of this year, it’s seemed as if investors had simply forgotten that Japan existed; its market has flatlined while most others raced upwards. But the recent resignation of Prime Minister Suga has jolted their memory, and talk of new leaders with new cheque books helped the Tokyo index to defy the wider gloom; it has rallied by 4% in just a week. (This is why Japanese equities form a useful part of a global portfolio – it’s good to have different parts doing different things at different times, and Japan often marches to its own tune).

Finally, we hop across the sea to China, where gaming giants Tencent and Netease were called in for another telling off from Beijing officials. Having already been on the receiving end of one share-walloping lecture earlier in the summer, they were again chided to “profoundly understand the importance and urgency of preventing minors from online game addiction.” Their shares promptly tanked again, dragging other tech giants with them, and turning what had been a mildly positive week for Asia Ex-Japan shares into a negative one.

And now a market scoop: The success of these tactics duly noted, the Evan-Cook household, which is similarly blighted by gaming-hooked minors, will henceforth move to the communist governance model. Sadly, at the time of writing, the US and Japanese markets are closed, so you’ll have to wait for next week’s report to hear how hard this hits shares in Microsoft and Nintendo.

In the meantime, have a great weekend.

Simon Evan-Cook
(On Behalf of Raymond James Barbican)

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

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