September 2015 Update
Government bond markets seen as safe havens due to falling commodity prices
Following last month’s stock market turbulence in China, all eyes this month were on the US Federal Reserve (Fed) and the question of raising interest rates. Though the Fed left rates unchanged at their record low, the head of the central bank, Janet Yellen, has refused to rule out the possibility of an increase before the end of the year.
The lack of bad news from China and the absence of a US rate rise provided a temporary boost to sentiment. Unfortunately, any upturn in optimism was subsequently outweighed by negative news flow from the corporate sector. As a result, most stockmarkets finished the month in negative territory.
Volkswagen shares dropped sharply in the aftermath of revelations it had been cheating emissions tests. The issue could force the company to recall thousands of vehicles and pay billions of dollars in compensation. The scandal not only affected the share price of VW, but was felt throughout the whole European auto industry.
Meanwhile, shares in global resources giant Glencore plunged to a record low after a research note was released suggesting that, due to the company’s massive debts, its shares could be worthless if commodity prices do not recover. But despite what some analysts are saying, Glencore confirmed in a statement that the “business remains operationally and financially robust – we have positive cash flow, good liquidity and absolutely no solvency issues.”
The trend in falling commodities prices, which lies at the heart of Glencore’s troubles, showed few signs of reversing in September. As well as concern about declining demand from China, record levels of supply are keeping prices low. In the oil market Saudi Arabia is keeping production flowing at a level that ensures it maintains its market share, while making it unprofitable for companies to produce more expensive types of oil, such as shale.
Amid the mood of uncertainty, investors preferred the perceived safe havens of government bond markets. Bonds issued by ‘core’governments, such as Germany, the UK and US, were in particular demand. Corporate bonds underperformed, producing negative returns.
The start of autumn had no dampening effect on the UK commercial property market. Capital values and rents continue to rise as investor and tenant demand remain strong. While the office market has been the best performing sector so far this year, industrial properties have also gained ground in recent months, boosted by demand for warehouses and logistics centres from online retailers.
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.
All figures quoted are in sterling terms to 30 September 2015 unless otherwise stated.
The information contained in this article has been derived from sources which we consider to be reasonable and appropriate. It may also include our views and expectations, which cannot be taken as fact.
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.