Global Equities (Developed and Emerging Markets) have corrected on an average of around 5 to 7% over the last few weeks after reacting to a series of recent market events listed below
· The Ukraine Crisis has dragged on for longer than originally expected. The sanctions imposed on Russia has negatively impacted the growth in the Euro Area.
· The Vote on Independence in Scotland might encourage other countries in the Euro Area such as Catalonia to follow suit and thereby enhancing the political uncertainty in the euro area
· Inflation remains low in most economies and ECB and BOJ are expected to maintain their zero rate policy longer than FED.
· Whilst economic growth remains modest in US, the broader readjustment of the price earnings will exacerbate market volatility.
· The FED’s current stance suggests the zero interest rate policy will not end before the mid-2015, which causes some market uncertainty
· Japan has also reported modest growth numbers however there is uncertainty in the structural reforms of the government policies
Asia and Emerging Markets
· The Pilot Programme - Shanghai-Hong Kong Stock Connect for the establishment of mutual stock market access between Mainland China and Hong Kong has caused positive momentum in both Shanghai and HK Markets. However, the political uncertainty caused by the pro-democracy protests could result in volatility in the market
· Brent Crude oil continues to drop below USD 90 a barrel for the first time since 2012 driven by instability in the MENA region, changing nature of crude oil supplies driven by shale oil production in US coupled with central bank polices
· The continuing spread of the Ebola virus
For our Lump Sum portfolio strategies, we recommended clients to exit all direct US holdings ,we recommend further reducing our developed market equity exposure , increasing defensive / trend following strategies whilst continuing to maintain Asia & Emerging Markets equity exposure so as to manage the overall volatility of the portfolios.
These are the following options for you
1) Increase Defensive/Absolute Return Strategies
Rationale: Absolute Return Strategies aim to deliver absolute returns in both rising and falling markets. Absolute Return Managers have the capability to take short positions , flexible asset and currency allocations
2) Trend following ( Diversified Managed Futures/ CTAs)
Rationale: Trend Following strategies focus on trading strategies to capture long term, medium term and short term trends in the market. They use a number of techniques and indicators to generate returns by capturing the market trends
3) Shorting the Market ( through ETFs )
Rationale: This is an aggressive strategy where the Exchange Traded Fund benefits from the one direction which is the fall in the markets
The allocation to the each of the above or combination of the above the strategies would depend on individual circumstances and risk profile
For Regular savings strategies, we recommend maintaining the current holdings as the medium term market volatility will benefit the portfolios in the longer term.