Market Snapshot - September 2019

Paul Niven

Managing Director, Portfolio Manager and Head of Portfolio Management, Multi Asset Solutions


After more muted performance in July, equity market returns turned negative over August as geopolitical concerns weighed on sentiment. Particular weakness was seen in the UK and Asia, stemming from continuing Brexit uncertainty and the ongoing protests in Hong Kong. Meanwhile, the trade war between the US and China escalated.

 President Donald Trump announced a 10% tariff on the remaining US $300bn worth of Chinese imports from 1 September (although these were later delayed until December), which saw a response from China that included halting agricultural purchases and letting the yuan weaken past the key 7 per US dollar level. This led to the US Treasury labelling China a “currency manipulator” for the first time since 1994. Both sides announced further tariffs in retaliation, and it seemed very unlikely that talks on a resolution would take place in September. 

Following its cut of 25 basis points (bps) in July, which disappointed overly dovish market expectations, the US Federal Reserve (Fed) emphasised – in the minutes from August’s Federal Open Market Committee (FOMC) meeting – that it will focus on the data going forward. Such has been taken as slightly hawkish, given that a majority of the FOMC were in support characterising the last meeting’s cut as a “mid-cycle adjustment to policy” rather than “the beginning of a lengthy cutting cycle”. In contrast, speakers from the European Central Bank have been more mixed in their views ahead of September’s meeting.

Global economic data remains lacklustre, with continued weakness in German manufacturing and industrial figures. In contrast, US retail sales were fairly strong in July and global purchasing managers’ index (PMI) readings held up slightly better than expected in August, although the services PMI in the US disappointed as it registered a 2.1 point drop. US recession fears rose again, as the US 2-year/10-year yield curve inverted, seen by the market as a key leading indicator of growth.

Europe has seen a fair amount of poilitcal drama over August; in Italy, Matteo Salvini withdrew support for the governing populist coalition, made up of his party – the right-wing Northern League – and Five Star, arguing for new elections. However, his plans were scuppered when Prime Minister Giuseppe Conte obtained a mandate from President Sergio Mattarella to form a new government, with a new coalition between Five Star and the Democratic Party likely, thus avoiding elections and further uncertainty.

In the UK, the Brexit situation deteriorated as Prime Minister Boris Johnson adopted a tougher stance against the EU and suspended Parliament for almost five weeks ahead of Brexit in order to push through his ‘do or die’ agenda. Chances of a ‘no deal’ exit continue to rise and weigh on sterling.

Emerging market equity markets underperformed relative to developed markets in August, particularly in Asia as protests in Hong Kong and trade tensions hurt performance. Chinese activity data for July came in weaker than expected, although such followed a strong uptick in June.

Our US Value and Small Cap strategies performed well over the month in relative terms, as did our Emerging and Global Income strategies. We ended August at a discount of 5.2% having averaged a discount of 4.8% over the month.

Despite the recent recovery in equities, valuation metrics in a number of areas remain reasonable and, provided that growth remains on a positive path globally, we feel that the outlook for global equity markets remains positive. Nonetheless, the cycle and bull market are maturing and the growth outlook is starting to moderate. We expect that volatility will remain heightened in the coming quarters and we continue to invest in a range of diversified underlying stock selection strategies. In our view, we remain well placed to withstand any further short-term volatility in markets.

All information as at August 2019, unless stated otherwise.

The Company is an investment trust and conducts its affairs so that its shares can be recommended by Financial Advisers to ordinary retail investors in accordance with the Financial Conduct Authority’s rules relating to non-mainstream investment products and intends to continue to do so.

The company is available for retail investors in the UK, professionally advised private clients and institutional investors who seek growth in capital and income from investment in global markets and who understand and are wiling to accept the risks, and rewards, of exposure to equities.

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Past performance is not a guide to future performance. The value of all stock market investments can go down as well as up and you may not get back the full amount originally invested. If you feel you need specific investment advice that takes your individual circumstances fully into account, please talk to a financial adviser. The value of directly held property will reflect the valuations determined by professional independent valuers. Such valuations are the opinion of valuers at a particular time and are likely to be revised. Property and property-related assets can sometimes be illiquid.