November 2013 Update
A good month in many ways, but some observers are concerned about rising house prices
Most asset classes enjoyed a positive month in October. Political machinations in the USA, combined with central bank policy actions, again proved the main distractions for investors. Closer to home, the UK economy continued its rehabilitation, while a number of corporate results also caught the eye.
The debate over the US debt ceiling and government shutdown dominated the headlines for the first half of October. After much unsightly mudslinging, lawmakers were able to reach a last-minute agreement. Markets initially responded favourably, although the rally was fairly muted. One upside, however, was that it meant the US Federal Reserve refrained from “tapering” its $85 billion-a-month quantitative easing programme. This asset-purchase programme has supported equity markets around the world, not least in the UK.
Meanwhile, Britain’s economy is growing at its fastest pace in more than three years, according to figures released by the Office for National Statistics. Gross domestic product grew by 0.8% in the three months to September. This represented an acceleration on the 0.7% recorded in the second quarter of 2013, a year-on-year rate of 1.5% and the first time since 2011 that the economy has expanded for three successive quarters.
The latest figures also showed that UK unemployment was coming down faster than forecast, with the jobless rate falling to 7.7% in September. This prompted analysts to predict that the Bank of England would have to amend its forecasts and increase interest rates earlier than predicted. The Bank has tied its policy to an unemployment level of 7%.
More concerning perhaps was data showing that house prices rose at their fastest pace for more than three years in October. The supply constraints caused by a lack of new builds and the surge in demand, in part spurred by the government's “Help to Buy” scheme, have combined to create what could be the start of another property bubble.
Meanwhile, a clutch of results from some of Britain’s leading companies appeared to reinforce the message that the UK recovery remains on track. GKN, the FTSE 100-listed engineering components group, unveiled third quarter figures that showed a 34% increase in pre-tax profits. Results from Britain’s high streets were also encouraging, particularly from Sports Direct, Home Retail Group (owner of Homebase and Argos) and online-only retailer Asos. News from the oil sector was less positive, though, with Royal Dutch Shell reporting a sizeable drop in profits.
Government bonds also benefited from the news that the US Federal Reserve would not be tapering its asset purchases any time soon. This and similar monetary stimulus schemes around the world have helped keep bond yields at record lows. Meanwhile, corporate bonds once again outperformed, buoyed by demand from yield-hungry investors.
Elsewhere, the upturn in UK commercial property gained further ground during October, with real estate returns reaching their highest level since April 2010.
Should I make any changes to my investments?
Everyone’s circumstances are different and we aren’t able to give you advice on what is appropriate for you. As always, if you are considering your own position, you should remember why you invested in the first place and consider the lifespan of your investments. Most importantly, you should seek financial advice before making any changes to your investments.
One way in which you can help reduce the impact of any market volatility is to spread your investments across different asset classes and regions. For more information about investing across different asset classes, take a look at our An introduction to diversification in multi-asset funds guide.
Remember that before making any changes to your investments, you should seek financial advice. If you don’t have a financial adviser, you can find one local to you by visiting find a financial adviser, which is responsible for promoting financial advice in the UK.
Investment markets and conditions can change rapidly and, as such, the views expressed in this Update should not be taken as statements of fact nor be relied on when making investment decisions. Forecasts are opinions only, can not be guaranteed and should not be relied on when making investment decisions.