The third quarter of the year often seems to be the most temperamental, not just in terms of meteorology but also financially. Whether it is just the reaction to a quieter summer period, with investment managers returning from their holidays, or the need for deals to be done before the end of the calendar year, it is this period that seems to be affected by more volatility than other quarters.
This year is likely to be no different, and in many ways might even be showing some more dramatic gyrations as investors and markets become increasingly nervous.
What we are seeing is a combination of factors coming together to create, if not a perfect storm, then at least the good chance of a violent one. Thus as investors we should be suitably preparing for it and battening down the investment hatches where appropriate.
For the past two years, despite the cries of the ‘naysayers’ we have been seeing the gradual healing in the global economy. This has been encouraging for both economies and markets, but of course has been primarily down to the provision of a huge amount of central bank stimulants being pumped into the economies to initially provide life support and thereafter further confidence that there will be a more sustainable recovery.
Inevitably the provision of such support was going to have to come to an end, and as we saw in the summer the mere threat that this might occur too early was enough to send a shiver through the markets. This of course was not just a concern for more mature markets, but directly impacted on the previously fashionable emerging economies in all facets from equities and bonds through to their currencies.
Now add to that the festering horrors of Syria and the related Middle Eastern issues and the potential for more direct military action from external parties and you can see the effect of such fears both on markets and investors.
Here then is a scenario for a perfect storm unless the politicians and central bankers manage their positions and policies very carefully.
For those of us who have the key responsibility for looking after clients’ investments, this will be a time for clear thinking and even clearer communication.
If you believe that the geopolitical impasse of Syria, while being awful, may at least be contained, and that the central bankers won’t be pulling the plug too swiftly on the QE lines, then the global economy will continue to grow at something above its long term growth rate of 3 per cent.
In this scenario, we as investors should have courage during such periods and not just look through the storms but also take advantage of those occasions when excessive surprise downturns could provide exciting opportunities for collecting assets at distressed prices.
So time to strap in for some turbulence ahead, but this will be no time to just hunker down – rather keep an eye out for potentially valuable assets in need of rescue.
