Market News

Market Update - August

19/08/2014

Geo-political tensions unnerve investors

Over the summer months we have witnessed an escalation of geopolitical risks, with events in the Ukraine and Middle East destabilising markets.  This is most significant for Europe where economic sanctions on Russia and the associated retaliation threaten to undermine an already stuttering recovery.  The impact of investor nervousness on equity markets has been amplified by low market volumes over the holiday period.  Markets without turnover, as is often the case during the summer, are easy to destabilise.  During periods of low trading volume, share prices tend to drift lower, perhaps reflecting the fact that there are always people that need to sell, whereas buyers have the advantage of being able to wait.

Growth momentum and corporate activity reassuring

Despite the pull back in markets, growth momentum in the US and UK economies remains robust.  US GDP growth rebounded more than expected in the second quarter of this year and a notable rise in merger and acquisition activity in the US also indicates business confidence and perceived value in the current level of the equity market.  We continue to believe that the US equity market offers appealing earnings growth, while its defensive qualities are attractive against a backdrop of weaker growth momentum and heightened geopolitical risk.   This side of the Atlantic, the UK has finally surpassed its pre-recession GDP peak.  However, despite the attractive growth characteristics, the strength of sterling is likely to weigh on UK equities because of the meaningful proportion of UK corporate revenues that are generated overseas.

Still favouring equities over bonds and cash

In spite of the recent set back, we believe that the environment remains supportive of equities.  We continue to have significant exposure to the UK market and overseas we favour the US and emerging markets.  It appears that emerging markets are starting to benefit from the developed market recovery, with rising export growth consistent across a broad range of countries. This cyclical improvement could lay the foundation for sustainable earnings growth across the region, which given historically low valuations, makes the emerging markets attractive. Conversely, we remain wary of the impact to sentiment from expected changes in US monetary policy and any possible undershoot in Chinese growth data, which has surprised on the upside lately but is still affected by the slowing property sector. 

We continue to believe that bond markets are overvalued, particularly at longer maturities, although are not suggesting that the historic low yields will not persist for some while longer, at least until increasing interest rates become a reality later this year or in early 2015.

Important information

The opinions contained herein are those of the Charity team at Cazenove Capital Management and do not necessarily represent the House View. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital Management does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital Management has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital Management is a trading name of Schroder & Co. Limited 12 Moorgate, London, EC2R 6DA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored.

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Monthly Market Update - August 2014 1 pages | 68 kb

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The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Limited 12 Moorgate, London, EC2R 6DA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored. 

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Giles Neville

Giles Neville

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John Clifton

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