Market Update

This short-term rush to exit ‘risk’ assets has been attributed to a number of factors with the key drivers appearing to be the rapid increase in global bond yields. This rise in yields is well within expectations and, combined with the higher than expected inflationary outlook, saw investors take profits from their equity holdings. The speed with which share prices fell was given added impetus as a result of forced selling from investment holdings wrongly positioned in leveraged short-volatility products. It has also been suggested that the recent prolonged period of low volatility has led to some investor complacency potentially leading to an ‘over reaction’ as markets sold-off.

At the time of writing, markets have recovered some of their poise having reversed a portion of their losses. Clearly, values had fallen to a level where investors felt they were attractively priced, serving to remind us how periods of short-term volatility can present opportunities, particularly for investment professionals who have the resources and capability to react quickly. We feel this episode of market volatility has not yet played out and we are likely to see further bouts of short sharp price movements. The question is when will this current market correction stop? The short answer is nobody knows.

The recent theme for investors over the last couple of years has been one of surprises. This latest one is no exception. The outlook for global economy appears to be in good shape with data continuing to point towards synchronised growth across the major developed markets in 2018. Given this, it would be extremely unusual to see a sustained or deep equity bear market against such a positive economic background.

Our portfolios have reacted as expected during this short downturn and we believe they remain well positioned to meet their medium to longer term objectives and do not see this market dip as a catalyst to make any ‘knee jerk’ changes. The key message is that market volatility is a feature of investing and it’s time in the market, not market timing that has more often than not delivered the desired outcomes. We will continue to monitor the situation and remain focused on the medium to longer term but should you have any specific concerns please contact us.

Kind Regards,
 
Investment Policy Committee

Posted by Mandy Kemp on February 9th 2018

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