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
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.