Duncan Lawrie Online ▼

Posted on: 13 October 2015

Global equities suffered enormous volatility during September, which began when the Federal Reserve (Fed) announced it would not raise interest rates. By the time of the announcement, the market fully expected the Fed to sit on its hands, so the decision was uncontroversial. However, in the statement that accompanied the decision, the Fed said:

"Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term."1

These words sent markets into a tailspin, with concern rising that a global slowdown, centred on China and emerging markets, might engulf the US economy. Expectations for a US rate increase have now been pushed back to 2016 and market attention has almost exclusively focused on the health of the global economy.

During September, US equities fell by 2.7%, but for a sterling investor the strength of the dollar cushioned the blow, with a fall of just 1.2% in sterling terms. The UK market held up well in the context of European markets as a whole, falling by 2.9%. The German equity market - with its high weighting to large industrial stocks - fell by 5.7%. However, among developed markets, Japan was the worst performer, falling by 7.7%.

As one would expect, emerging market equities were also down, but it was the weaker economies that were hit hardest, including Indonesia (-9.2%), Russia (-4.1%), Thailand (-3.7%) and Brazil (-3.7%). These moves were amplified by drops in emerging market currencies, particularly the Brazilian real which fell 9% versus the dollar.

In terms of sectors, resources-related areas like Oil & Gas and Basic Materials continued to be the laggards, down 7.6% and 13.4% respectively. Industrials, which are increasingly suffering from the global slowdown, were also weaker, down 4.7%. Defensive sectors outperformed the falling market, particularly Utilities (+3.4%) and Consumer Goods (+5.2%).

Fixed interest markets also provided a safe haven for risk-averse investors. Medium-dated gilts rose 3.4% and UK corporate bonds were also in positive territory.

The equity market reached oversold levels at the end of September and a rally has since developed, with the oil price firmer and the release of minutes from the Fed indicating that they are in no hurry to raise interest rates. The company reporting season gets under way in October and will provide more information on the state of the global economy. It is likely to dominate the market narrative for the next few weeks.

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All data has been compiled by Duncan Lawrie from sources believed to be reliable. Full details of sources are available on request.
The comments and figures in this document are generally applicable but you should always take specific advice  to suit your individual circumstances before taking any action. Errors and omissions excepted.
The value of investments and income generated may fall as well as rise, and investors may not get back the  amount invested. Past performance is not a reliable indicator of future results.

[1]  http://www.federalreserve.gov/newsevents/press/monetary/20150917a.htm