Political and economic events in recent months have had the potential to upset markets, from conflicts in Ukraine and the Middle East to the end of quantitative easing in the US.
So we have not been surprised to see some seasonal weakness. In the long term, however, we continue to see value in quality large cap stocks and dividend payers.
In the UK, many people breathed a sigh of relief at the firm rejection of Scottish independence on September 18, but the frisson of fear about the outcome encouraged the weakening of sterling against the dollar. We think that this trend may well continue.
The UK general election is only months away and it is a local matter about which media commentators will wax lyrical. Markets may worry a little about the outcome, any concerns mostly being reflected in the currency and bond markets. Overall, however, we believe UK markets will primarily dance to global tunes.
Many global financial markets have fallen as the dollar has strengthened. Western government bonds have been a relative safe haven, though losing a little ground, while corporate bond markets have weakened some more.
However, we saw the advent of the biggest ever flotation in September: that of China’s Alibaba. Its valuation is now bigger than that of Amazon and eBay combined. Perhaps its IPO will, in retrospect, mark a near-term high point for that sector.
Elsewhere, escalating geopolitical tensions (US-led air strikes against the so-called Islamic State, the Ukraine situation and the demonstrations in Hong Kong), coupled with slower Chinese domestic growth and the stronger dollar, have dented investor confidence at a time of year when markets often struggle.
Emerging market stockmarkets and currencies have been weak, whereas Japan’s stockmarket has rebounded, with an even better result for yen-hedged investors (such as Jupiter Merlin). The economic figures in Japan have been mixed and further quantitative easing there is likely.
Within global equities, some of the largest US companies continue to lead, aided by a strengthening economy fuelled by abundant and cheap energy.
Coupled with continuing low interest rates and firm domestic consumption, companies have a decent backdrop within which to operate, in our view. The falling oil price, which is 15 per cent cheaper than it was in June, is a help to energy consumers across the world – essentially a ‘tax cut’.
As an Economist headline of the early 1980s had it: “Cheaper oil makes ya strong.” Not so great for oil producers, though.
There are continuing worries about economic growth in the eurozone. In mid-September, the Organisation for Economic Co-operation and Development noted this lack of growth in the eurozone was a major drag on the world economy and recommended “more monetary support” for the euro area by the European Central Bank (ECB).
Various types of medicine have been proposed by the president of the ECB, Mario Draghi, but it looks likely that quantitative easing (QE, or printing money) is the next step. In spite of this, some European companies are still able to deliver attractive growth to investors, in our opinion.
The autumn is often a time for stockmarkets to exhibit seasonal weakness. In the background, we have the likely ending of QE by the US Federal Reserve, together with the potential for interest rate rises in both the UK and the US.
A stronger dollar and weaker emerging markets should not be a surprise in such a scenario. Overall, shares have travelled a long way since the financial crisis-created low in March 2009.
Nonetheless, long-term savers who invest in well-managed, well-financed companies that have competitive advantages in a global landscape should prosper over the long term, in our view.
Fund managers who buy those sorts of companies are favourites of ours. As an advert of yesteryear used to say: “Get rich slowly.”
John Chatfeild-Roberts is chief investment officer at Jupiter
