Equity markets delivered positive returns in September, with notable gains in Japan and Europe, while the US and Asia ex Japan underperformed. Sentiment was helped by some progress with regard to trade relations between the US and China, as a new round of talks to be held in early October was announced and both parties delayed or removed some tariffs. The US Federal Reserve responded to dovish expectations, cutting rates by 25 basis points (bps) and leaving forward guidance from July intact, with little pushback against market expectations of further easing. In Europe, the European Central Bank implemented an open-ended stimulus package as a result of the deteriorating domestic economic situation, cutting the deposit rate by 10bps as well as relaunching quantitative easing.
Economic data generally continued to soften globally, with Europe showing continued deterioration, as most data releases surprised on the downside. In the US, data remained mixed, with consumers buoyant and strong labour markets evident, while manufacturing sentiment indicators remain weak.
Turning to politics, the Brexit process remains gridlocked, as the UK Parliament passed a law preventing a ‘no-deal’ exit on 31 October. Prime Minister Boris Johnson’s suspension of Parliament was deemed unlawful in a landmark ruling by the UK Supreme Court. With the Brexit process and Parliament paralysed and time running out until the October deadline, the outcome of Brexit remains as uncertain as ever.
Emerging markets generally underperformed relative to developed markets in September. Chinese data was mixed, with weaker-than-expected August activity data but slightly improved September purchasing managers’ index figures. Following drone attacks on two oil facilities in Saudi Arabia, oil prices briefly rose by around 20% but subsequently reversed most of the move as production was restored more quickly than expected and there were no significant retaliatory actions by the Saudis.
We ended September at a discount of 5.0%, having averaged a discount of 4.5% over the month.
Despite the recent recovery, valuation metrics in a number of areas remain reasonable and, provided that growth remains on a positive path globally, we believe that equity markets should remain well supported. Nonetheless, the cycle is mature and the bull market in stocks is extended with outlooks for global growth in 2019 starting to moderate. We expect that volatility will remain heightened in coming quarters and we continue to invest in a range of diversified underlying stock-selection strategies. We remain well placed to withstand any further short-term volatility in markets.
All information as at September 2019, unless stated otherwise.