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.