October 2014 Update
A good month for the US and property, a poor one for the UK and commodities
After a volatile month, global equity markets generally ended September lower. The UK was one of the worst performers, hit by a combination of disappointing corporate news and falling commodities prices. Mining and energy companies, which are well represented in the FTSE, suffered losses after iron ore prices dipped sharply on signs of flagging demand from China. Chinese data has given some cause for concern in recent months, contributing to weakness both in the prices of commodities and in the shares of companies that get the materials out of the ground.
Sharp losses among the shares of UK supermarkets added to investors’ woes. Tesco dominated the headlines. Its shares fell to an eleven-year low after it was revealed that its profits had been overstated by £250 million. Financial regulator the Financial Conduct Authority has announced it intends to investigate the hole in the company’s finances. The repercussions were felt throughout the retail sector. Shares in both J Sainsbury and Wm Morrison struggled, amid evidence they are losing an increasing amount of market share to rival supermarket groups such as German discounters Aldi and Lidl.
However, European markets received some support when the European Central Bank unexpectedly cut interest rates to new lows and unveiled a new asset-purchase programme – its latest bid to revive the flagging economy and stimulate inflation.
But while Europe’s economy struggles to generate growth, the US is providing cause for encouragement. Importantly for investors, there is evidence this growth is feeding through to corporate profits, which has helped to underpin the market. According to JP Morgan, profits growth among the S&P 500 index’s constituents reached record levels during the second-quarter earnings season.
Other encouraging corporate news during the month included the world’s largest-ever stock market listing. Chinese e-commerce group Alibaba made its US market debut in a listing valuing the company at more than $200 billion.
Bond markets generally outperformed equities over the month, boosted by geopolitical concerns surrounding Ukraine and the Middle East. An easing of inflation concerns also acted to lower yields and boost prices. Reflecting investors’ aversion to risk during the month, corporate bonds underperformed government bonds. High yield bonds, which have performed strongly this year, struggled as volatility returned to the marketplace.
Meanwhile, the momentum behind commercial property is showing few signs of abating. The asset class has been among the standout performers over the last year, benefiting both from growing investor demand and the relatively attractive yield. Much of the demand has been for assets in London and the South East, which has driven up values to the extent that some properties are starting to look overpriced. Commercial property is a wide and varied market though, and there remain opportunities for rental and capital growth throughout the office, industrial and retail sectors.
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 2014 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.