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Market View

Market View: October

 

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

The third quarter of 2015 was the weakest for stock markets since the so-called ‘Eurozone crisis’ of 2011. Emerging markets were down around 15% since the mid-year point and the best part of 30% down from their April highs. Developed equity markets also suffered.

The cause of the falls, and especially of the late-August turbulence that gave China its very own ‘Black Monday’, was debated. 

Two camps emerged. The first, playing out mainly in the popular press, was that the bursting of China’s consumer-driven stockmarket bubble somehow ‘rippled’ around the world and caused falls elsewhere. The second, a more plausible narrative, was that weakening global corporate earnings growth coincided with an anticipated rise in US interest rates. The combined effect caused markets to correct downwards.

Market storytelling is always an attempt to make sense, after the fact, of the extremely complex and living entities that we call stockmarkets. Sometimes these stories are about the market as a whole (told via the movement of indices like the UK’s FTSE 100), and sometimes they are about individual shares.

So it was also at end of Q3 2015 that a classic ‘single stock crisis’ came into view: the Volkswagen Group, one the world’s largest carmakers owning many well-known brands, had apparently used sophisticated software to cheat emissions tests. 

As this is written, the full details of VW’s alleged offence are still emerging. We can only guess at the total cost to the company in fines, reparations and reputational damage. But share analysts have made their estimates, the market has spoken, and the share price has collapsed.

A nasty corporate secret bursting out of the ground and rampaging through the streets of the City is what portfolio theorists call ‘unsystematic risk’: risks unique to an individual company. It’s the opposite of ‘systematic risk’, which is the risk of holding shares per se.

You can’t really do much about systematic risk, except to hold a smaller proportion of shares in your portfolio if you don’t like the risk level you’re experiencing. But you can do something about unsystematic risk: diversify.

All of the portfolios we offer at Sanlam are well-diversified. You’ll hold a blend of different assets, countries, companies, styles and investment houses. Your financial planner’s role is to make sure that you are in the right portfolio level for your risk profile and goals. Your portfolio manager is here to select the best underlying funds and to blend them with skill.

Disappointing quarters happen, and they will happen often. Our aim is to add value in all types of market, both good and bad.

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.