ALEC STEWART
For many investors, the slogan ‘Keep Calm and Carry On’ carried new meaning over the summer, in what was a turbulent period for markets. With Chinese inspired volatility affecting equities across the board, not even ‘safer’ developed market equities offered respite. Neil Woodford, one of the UK’s most prominent fund managers, summed it up by quoting the classic poem “If” by Rudyard Kipling, advising us to ‘keep your head when all about you are losing theirs’.
Stock market pessimism has all but faded from the main headlines but many investors will be licking their wounds. From our perspective though, the summer really was ‘business as usual’. A typical client, as represented by our balanced model portfolio, would have lost 3.4per cent in August. Not ideal, but far less sensational than ‘Shanghai A-shares fell by a third’.
Though we should put the ‘market turmoil’ into perspective, we are clearly in more uncertain times. Oil prices, a traditional indicator of global growth, have fallen to a crisis low, with a corresponding fall for producers. As the world digests reduced demand from China, the share prices of mining companies are also under pressure. To complicate matters, the US decided not to raise interest rates this month, sending a signal of low confidence.
Depending on who you speak to, investment risk can often seem rather esoteric or mathematical. However, regardless of how you define or categorise risk, an important objective should be to achieve a ‘smoother ride’ overall. Investment diversification helps to achieve this. Although cliché, not putting all your eggs in one basket is sage advice even for investment professionals. In an environment of heightened volatility, and sentiment driven markets, sensible portfolio management and selectivity are especially important. Bonds, property and absolute return vehicles continue to play an important part, however our investment team has found plenty of equity opportunities to be excited about.
Although China is no longer growing at the breakneck pace of the past, it is the second largest economy in the world, targeting growth of around 7per cent GDP. It is pertinent to point out that we would be over the moon with 3per cent in the West. The Government has made its intentions clear about its new focus on consumer-led rather than investment-led growth.
I am intrigued by the world’s alarm over the moderating pace of demand. It is understandable that concerns remain about a potentially hard economic landing, but low commodity prices are a function of oversupply, as well as easing demand. Large mining companies have deliberately flooded the market with metals. An agreement by OPEC not to reduce oil production, the US shale revolution and Iran waiting in the wings, means that it is now possible to fill up the car for as little 110p per litre.
Big international commodity producers have clearly not helped FTSE 100 investors in 2015. Year-to-date though, UK smaller companies returned 5.2per cent versus a loss of 6.8per cent from the FTSE 100. The UK economy itself is doing well and has been reflected in the more domestic names. UK retailers and housebuilders have done particularly well. Consumer confidence has been high and savings at the petrol pump have supported spending power.
On a similar trend, many worry about the fortunes of Japanese companies being hit by slower growth in China. Analysts and earnings forecasters are probably quite right to be nervous about their exporters. However, there are some really positive changes going on in Japan which should provide good investment returns to those looking in the right places. Inevitably, reform stories are slow burners and ‘taking two steps forward and one step back’ is not unexpected. Nonetheless, we see a lot of potential in domestic, growth-oriented smaller companies.
Overall, lots of opportunities remain. Sensible, long-term investors will ride out this current bout of doom and gloom which could well blow over by the New Year.
Alec Stewart is chief executive of Anderson Strathern Asset Management
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here