Market Outlook Report – September 2018

Market Overview

September 2018

FTSE falls to four month-low during September
Last month saw London's blue chip stocks fall to their lowest finish since April as the pound sharply reversed earlier softness, oil prices weighed and UK business optimism remained low amid trade and geopolitical tensions.  At one point, the FTSE 100 was down to 7,229.75 (on 11 September), but has since recovered.  The FTSE 100 reached an all time high of 7877.45 in May of 2018.

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Tech giants fall after US Senate hearing
A sustained sell-off in American technology shares and fears about a global trade war pushed world stock markets down in early September.

Technology investors were unimpressed with the congressional testimony of top executives from Facebook and Twitter, who were called to answer questions about election meddling on their platforms.  Their testimony sparked a short-term sell-off.

Investors appear to be increasingly worried that US Congress will seek to regulate big technology companies more closely.  The questioning by the Senate intelligence committee of Sheryl Sandberg, chief operating officer of Facebook, and Jack Dorsey, founder and chief executive of Twitter, suggested that it would take a more aggressive approach to the matter.

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Scottish Mortgage Investment Trust recommended in Sunday Times
The Baillie Gifford Scottish Mortgage Investment Trust is one of cornerstone, long-term portfolio holdings, which has returned 23.7% growth over the past year (11.9% over the past 6 months, despite adverse global market headwinds).  With a creditable 5* FE Crown Fund Rating with Trustnet, it has won a hat-trick of Money Observer awards for Best Global Growth Trust in 2015, 2016 and 2017.  With established investments in Amazon, Google or Apple, the fund mantra is “resolute optimism”.  The average annual fee for this investment trust is 0.98%.

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Confidence in the UK stock market plunges
Retail investors’ confidence in the value of the British stock market appears to have dropped to its lowest level in 23 years.

An index of investors’ mood compiled by Hargreaves Lansdown, the investment firm, has fallen by four points to 58, the lowest since the measure began in 1995 and surpassing lows seen after the Brexit vote, President Trump’s election and at the height of the financial crisis.  The latest monthly figure compares with an average of 71 points over the past year and a decade-long average of 92.

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Wall Street hits new records
Towards the end of September, a rebound in technology and banking stocks overcame recent fears about rising trade tensions between the United States and China to produce yet more Wall Street records

The Dow Jones Industrial Average's highest closing record is 26,743.50, set on 21 September 2018.  It followed a record set the previous day.  These were the first records set since 26,616.71 reached on January 26, 2018.  After hitting that peak, the Dow went into free fall.  On February 8, it entered a market correction, which lasted 6 months until August.

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"Dollar bulls are wrong, you should back emerging markets"
Investors shouldn’t allow the strong dollar to put them off emerging markets, as many of the greenback’s drivers are likely to fade away over the long term, according to Neptune Investment Management’s James Dowey.  Neptune’s chief economist said that the long-term bull case for the dollar may be overdone and so-called ‘dollar bulls’ need to face a number of reality checks.

“What we’re seeing right now in China is deceleration partly related to the tariffs from the US but also due to historic tightening in late 2016 and early 2017,” he said.  “It’s not great for emerging markets. However, we took a forward-looking perspective with China and what we see now is an aggressive set of simulative policies, which we believe will stabilise growth towards the end of the year and the start of next year and be very good support for emerging markets.”

Similarly, Mark Coombs, the Chief Executive Officer of the financial services business, Ashmore Group PLC, is not concerned by the recent turbulence within emerging markets and has encouraged investors to take advantage of cheaper valuations that are now present.

“The recent weakness in emerging markets asset prices has not, with one or two exceptions, been caused by a deterioration in economic fundamentals, but rather by a number of developed world events that have led to broader risk aversion in global markets,' Coombs said. 'Asset prices have extrapolated the challenges faced by a small number of emerging markets countries across the broader universe.  This therefore presents another highly attractive entry point, with valuations back to levels seen 18 months ago immediately following the US election and which underpinned a subsequent period of strong returns.”

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The information in this blog or any response to comments should not be regarded as final advice. Please remember that the value of your investment can go down as well as up, and may be worth less than you paid in. Information is based on our understanding at September 2018.