September Investment Market Update 2016 – Ken Baksh (Investment Advisor)

During August, when even quieter markets than normal prevailed with extra sporting distractions, global fixed interest and equity markets tended to take their lead from Central Banks and scraps of macro data (Investment Advisor).

Within the UK specifically, mixed signals from both the broader economic and corporate areas continue to appear, following the momentous BREXIT vote (Investment Advisor).

Equities
Equities were relatively flat during August 2016.The FTSE ALL World Index, expressed in dollars, fell 0.04 % during the month and is now up 4.17% from the beginning of the year. The UK broad and narrow indices, both rose about 1%, adding to the July advance following the BREXIT vote on June 23rd. Sector variation remained high. Overseas indices displayed a mixed performance during the month with the Japanese Nikkei Index and the German DAX Index both rising while the S&P index fell marginally. Emerging and frontier markets continued to advance during the month and The VIX index bounced off recent low levels but still remains near “calm” levels.

UK Sector
UK stock market sectors continued to show great volatility with the banking sector, a previous laggard, up 12.09% in price terms while the mining sector declined 5.82%. Year to date, however, mining shares have shown a very impressive 50.3% gain, albeit from a low base, while property shares, seriously affected by the Euro Referendum results, have declined by19.1%. Be very selective in your choice of funds/individual names and balance between smaller cap and FTSE! The “average” UK All company UK unit trust continues to lag the index, with small cap stocks underperforming by about 6% (Source Trustnet:August 31).

Fixed Interest
Gilt prices rose over the month by 1.98%, the UK ten-year issue, for instance finishing the month on a yield of 0.64%. Other ten yield yields finished the month at USA (1.57%) Germany (-0.13%) and Japan (-0.06%). UK corporate bonds also rose, by 2.1%% in August and 11.24% year to date. Amongst the more speculative grades, yields also fell, perpetuating a move to higher yielding but riskier fixed interest paper. Fixed interest products away from conventional government bonds remain my favoured plays in this asset class. See my recommendations in the area of preference shares, convertibles, corporate bonds etc.

Foreign Exchange
The main feature amongst the leading currencies, during August was the strength of the Japanese Yen.On a trade weighted basis sterling dropped 0.62%, with declines against all of the leading currencies, on top of the end June/July falls. Dollar/Yen was barely changed on the month as was dollar/euro which has held a relatively stable range for a number of months. In sterling adjusted terms global equities are now nearly 9% ahead of the FTSE over the eight months to end August, with America and Japan leading the way amongst the major equity markets.

Commodities
A mixed month for commodities, with gold and other precious metals declining while oil rose. Additionally wheat, corn and soy continue affected by over supply issues.
(KEN Batch, IFAC 2016).