October - December 2018

Market Summary of Q2

Moving Forward – Preview of 4th QTR

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Market Summary of 3rd QTR

Global equities made gains in Q3, primarily due to US market strength. Political uncertainty and trade concerns weighed on other regions. Government bond yields were broadly higher.

US equities significantly outperformed other major regions. Economic growth and earnings data remained extremely robust, ultimately overshadowing concerns surrounding the escalating US-China trade war.

Eurozone equity gains were modest. Banks were generally weaker amid concerns over exposure to emerging markets as well as worries over the Italian budget. 

The UK’s FTSE All-Share fell over the period. The Bank of England increased base rates and sterling fell in response to political noise around Brexit.

Japanese equities saw strong gains amid a weaker yen and greater clarity on the medium-term policy outlook following Prime Minister Abe’s re-election as his party’s leader.

Emerging markets equities lost value, with US dollar strength and trade tensions weighing. China underperformed as the US implemented tariffs on a total of $250 billion of Chinese goods.

In the Bond Markets, core government bond yields rose (i.e. prices fell) over the quarter despite a bout of safe-haven demand in August.

Moving Forward - Preview of 4th QTR

Global equities could see sharp declines in the 4^th quarter on persistent concerns over global trade and slowing economic growth. Government bond yields will likely follow-suit and reflect broad uncertainty.

US

Equities we think will decline, with December probably being the worst of it. The Federal Reserve (Fed) will likely raise interest rates towards the back-end of the quarter on predicted continued stability in economic data. The labour market we feel is extremely strong. However, it comes down to the view of the central bank, if they signal a more cautious view for the coming months then it's a different story. If they revise down its “dot plot” (median rate projection), meaning it would expect two interest rate increases in 2019 instead of three previously, reflecting a more cautious economic forecast. GDP growth forecasts may be revised down in 2018 and 2019, with inflation projections predicted to be the same.

We await reports from several high profile IT firms about earnings, if the reports are not good this will also have a negative effect.

Eurozone

European equities will also likely declined, with trade tariffs, expected slower Chinese growth and Brexit combining to form a difficult environment.

Data could point towards slowing momentum in the Eurozone economy. People should keep an eye on the flash composite purchasing managers’ index as to business activity as this can be a good indicator. Predictable ongoing protests in France and ongoing weak demand for new cars could factor in weighing on activity. The European Central Bank is expected to end its bond-buying programme meaning it likely that interest rates could remain on hold through well into 2019.

The FTSE All-Share will likely fall during this period, with global developments setting the tone for the market. The Sterling in will come under pressure from political uncertainty around the finality of Brexit, with worries of a “no deal” departure from the EU being the main threat.

Asia

Japan will see equities in various sectors come under pressure, with weakness coinciding with periods of yen strength as the currency continues to be viewed as a "safe haven" at times of increased uncertainty.

Across the region, export-oriented markets Taiwan, South Korea and China's markets are likely to come under pressure. Taiwanese and South Korean stocks await reports from their technology heavyweights and signs are not promising. In China, healthcare and energy could both be poorly performing sectors. Hong Kong equities will see pressure but we are confident in the Hang Seng's ability to continually outpace the region as their consumer staples stocks will see strong gains as usual and can help balance out potential losses from elsewhere.

Meanwhile, we predict lower crude oil prices which will lift some net oil importers such as; Indonesia, the Philippines and India may see their overall markets remain around the same or see small gains.

World

Emerging markets equities will follow-suit with the familiar array of global trade and growth concerns weighing on returns.

Emerging markets could be in for tough times in this quarter due to the US-China trade dispute continuing adding to concerns over global growth. Keep an eye of The MSCI Emerging markets index and the MSCI World.  

Brazilian equities, however, may buck the global trend and rally ahead of the election outcome in late October.   

Mexico is likely to show weakness in its index markets over rising concern of the incoming government’s policies, and the implications for investment could possibly lead to a sell-off in equities and the peso.

Bonds

Bond yields will likely be lower (if prices rise) over the quarter, this will be a  direct reflection of increased risk aversion and volatility amid continued macro uncertainty relating to trade tensions, Brexit and maybe politics in Italy.

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All our buyers and sellers can look forward to some exciting opportunities this quarter and moving into 2019, there are multiple statutes of limitations from bank loans paid in shares that will become available from the Asia Pacific and Eurozone regions so expect our team to be in contact with you and as always be ready as we will need to move quickly on these. Some opportunities that we have been involved with in the past will be available again.

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