Monthly Market Update: Markets and economies going their separate ways

Wed 09 Oct 2019

Read our full Monthly Market Blueprint October 2019

• Global economic data suggest that the slowdown in global manufacturing (especially capital goods) is accelerating, and the services sector is now following this trend. The US has joined the cohort of large countries which now see their economy slow. Inflation remains at bay and unemployment in developed markets is near all-time lows, however we could see some pressures ahead as companies eat into their backlogs. Consumption is dented and capital expenditure is suffering as a result of weaker trade. The trend favours countries with strong internal demand vs those more dependent on asset-heavy exports.
• Risks for global growth are increasing: Trade wars, Brexit uncertainty and the Chinese slowdown, along with the fact that the cycle is well into its tenth year, may unnerve investors. On the back of this feeling, central bank accommodation is increasing, and the Fed’s persistent assuaging of investor anxieties certainly helps those investors willing to buy on a dip. This has helped risk assets remain at high levels, contributing to a dichotomy between the economic and market signals.
• Our latest investment committee in September felt that uncertainty has increased. Markets and economies seem at odds with each other and the question we faced with is “when and how will that gap close”. Additionally, probabilities of a disorderly Brexit have climbed. Therefore, we decided against changes in the asset allocation, as we feel the portfolios are positioned exactly for this sort of environment. We don’t maintain strong geographical preferences at this point, awaiting for more visible catalysts going forward. We still believe that the cycle, for the time being, remains intact but it is showing increasing signs of maturity.