Equity markets had little direction last week as the reality of the horrific power of hurricanes pushed Korean sabre-rattling of the headlines. The flow of economic data provided little direction – the European Central Bank leaving rates unchanged coming as absolutely no surprise whatsoever. Amid all this, demand for US Treasuries picked up and the 10 Year yield fell to 2.06% whilst the US dollar hit its lowest level since early 2015.
We still remain wary of both equity and bond markets at current valuations. It is fair to say that we have had this feeling for some time and have talked often before about why we have adopted a more defensive stance. The key questions are has this stance been justifiable and has it caused us to lose out on any opportunities?
As far as we are concerned the answer to the first question is a resounding yes. Stepping away from the day to day for a moment and looking at the scale of some of the challenges markets have faced recently leaves us in no doubt whatsoever. We have acted prudently and will continue to do so. But what about missing out on the opportunities? We do not feel we have in any meaningful way. Key equity markets have largely traded sideways and we have kept an overweight equity position anyway. The area that has powered ahead has been emerging markets – and these are our biggest overweight position.
So we are eying up the coming final quarter of the year with mixed feelings. From a purely parochial perspective, we are increasingly nervous about the UK and whether there may be a technical recession in the coming months. Our view of the consumer related sectors has reinforced this and we would be wary of adding to UK equity positions at this time. The rest of the world looks more interesting. The systemic equity pull back we expect would be welcome for those with new money to invest and should, as we have said before, be viewed as an entry point by them. For the rest, keep focused on the longer term and avoid tying to get too clever with market timing.
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