If the prospect of a trade war wasn’t bad enough, we then got missiles flying around the Middle East. Nobody expected spring to be a bed of primroses but investors have had to face a few challenges recently. With typical perversity, of course, most equity markets ended the week higher despite all of the noise.
The underlying tone seems to reflect a recognition that, yes, volatility is back but, despite the nasty slides in equity prices earlier this year, the global economy is still ticking along okay and equity valuations are now cheaper in most cases. A lot cheaper in some cases. And a case in point is Russia. The rows and sanctions have seen both the ruble and share prices take big hits. We have a small position in Russian equities and are very aware this has suffered in recent days. We are keeping a close eye on things but do acknowledge it may be a while before things settle down.
Our expectations for the short term remain unchanged. Equities are still a better place to be than bonds. But equity volatility is back. With a vengeance. In a mature economic cycle – or even a late cycle in some cases, such as the US – it is well worth weighing up how much you stand to make against how much you stand to lose. It is a particularly difficult choice for new money – do you enter the market now or stay in cash and get practically no return? It all hinges on how much risk you can take. And how much you can afford to lose. Because, just as we expect more good days, we also know there will be some bad ones.
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