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Market View

Market View: November

 

Welcome to this month's Market View, where we take a look at the markets from the previous month.

The first week of October saw equity markets bounce back a little from their recent lows, but this upward momentum was short-lived. The rest of the month saw the major indices back in a holding pattern with the FTSE 100 hovering nervously around the 6250-6450 range.  

Bond prices were largely flat over the month. It was interesting to note the fall in gilts that occurred during the strong opening week for equities. This is the classic ‘negative correlation’ between bonds and equities at work. It’s an often observed inverse relationship which underpins a great deal of portfolio theory, but it cannot be counted on in all markets. Many have learned this the hard way.

The slight rally in equities was led by the emerging markets, which had fallen around 30% from their April highs in the period to late August. 

The global outlook does appear to be weakening. Corporate earnings growth forecasts show negative consensus. What mustn’t be overlooked, though, is that economies and markets always move in cycles and that slowdowns within those cycles are perfectly normal. Market commentary has tended to focus on monetary policy in recent years (QE and ultra-low interest rates) and, while these factors are important in understanding where we are, the underlying cycle hasn’t gone away.

On the subject of monetary policy, we now seem to be much further from an interest rate rise than Mark Carney, Governor of the Bank of England, appeared to suggest in July. This is linked to the idea that we are entering a cyclical economic slowdown: in those conditions inflationary pressures will ease, and therefore a rise in borrowing costs would be to slam on the brakes at the worst possible time. Expect rates to be ‘lower for longer’ as we enter 2016.

The term ‘slowdown’ is strictly relative. We would call the UK ‘booming’ if its economic growth rate were anywhere near 6.9%; in China, though, anything less than double-digits is a disappointment. For all its dynamism and industrial might, China has long been known to carry structural weaknesses rooted in demographics. It was no surprise to see the Chinese government finally end the infamous One Child Policy in October.

The Sanlam risk benchmarks, the strategic anchor points of most of our portfolios, showed minimal growth over the year to Halloween. All benchmarks were positive for the year, but they were also all squashed in a tight range between 0.36% and 3.62%. Actual portfolios will have behaved differently due to active management decisions and the impact of charges. We continue to focus on risk and discipline as the cornerstones of our philosophy. Returns come when they come in uncertain markets; and it is to the calm and patient investor that they mostly accrue. 

Past performance is not a reliable indicator of future results. The value of investments can go down as well as up and may be affected by exchange rate variations. As a result, the benefits available under any policy/account linked to the model portfolio may be lower than anticipated. You may not get back the amount originally invested. The portfolios referenced above are managed by Sanlam Four.

Sanlam & Sanlam Investments and Pensions are trading names of Sanlam Life & Pensions UK Limited (SLP (Reg.in England 980142)) and Sanlam Financial Services UK Limited (SFS (Reg. in England 2354894)). SLP is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. SFS is authorised and regulated by the Financial Conduct Authority. Registered Office: St. Bartholomew’s House, Lewins Mead, Bristol, BS1 2NH.

Investing involves risk and the value of investments and the income from them may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.