Opportunities bountiful, but beware short-termism

This article is part of
Autumn Investments Monitor - September

Oliver Wallin, investment director at Octopus, says: “The upheaval in Egypt has been a concern for some time, but it is really the problems in Syria and the possibility of military action by the west that have caused alarm.

“The resulting uncertainty has been weighing on investors’ minds and has made market corrections ever more likely. How far markets fall, and for how long, will depend on how these situations play out.”

But while this may have an effect on market volatility in the coming months, there is much more to be positive about in the medium to long term.

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In the UK, for example, Bank of England governor Mark Carney brought an element of calm to the market in the form of his ‘forward guidance’, which stated that interest rates would remain unchanged until unemployment fell below 7 per cent.

Similarly, US Federal Reserve chairman Ben Bernanke, who wreaked havoc among markets with his ‘tapering’ suggestions in June, addressed fears in August by stating that US interest rates would remain low in spite of rising employment rates.

“The US economy is on a roll,” says Ian Heslop, manager of the Old Mutual North America fund.

“House prices are rising and employment is stabilising, with a string of good job-creation numbers in the past 12 months. Consumers are feeling better and starting to spend more confidently.

“Instead of the widely feared fiscal cliff, sequestration – as it’s now being called – has proved a boon, reducing federal spending without the need for divisive, dispiriting political cage fights. The International Monetary Fund now expects the US federal deficit to fall to a manageable 2 per cent within two to three years.”

But Japan’s prime minister Shinzo Abe faces his toughest challenge yet as he implements the third arrow of his structural reform, which aims to revitalise Japanese industry.

Neil Veitch, manager of the SVM World Equity fund, explains: “We have seen the introduction of unconventional monetary policy, the adoption of a very aggressive fiscal position – but we’ve not yet seen the third leg, which is significant structural reform and that will be much more difficult for Abe to implement.

“The equity market has rallied on the basis of a significant improvement in the underlying economy. That may well come to pass but for us the risk/reward is not significantly attractive.”

And with Europe officially out of recession, the opportunities for investors, particularly within equities, are bountiful.

The important thing for investors to remember, however, is to plan for the longer term rather than allow short-term political issues to sway them from the capital growth potential that is available.

Jenny Lowe is features editor at Investment Adviser