Market Perspectives - Quarter 3 2015


• The Chinese stock market had a significant correction in August, and within a day (24th of August, dubbed “Black Monday”) Shanghai Composite Index closed down -8.49%. For now investors remain cautious on China and all eyes are on the authorities and their next move.

• A slump in commodity prices leaves commodities as the worst performing asset class.

• Despite modest projections of stronger global growth next year, deflationary pressures will persist. Advanced economies are set for a gradual pickup but there may be a slowdown in developing economies.

• After the recent correction developed markets appear attractive; however we still underweight the US market and are more optimistic with regards to Japanese and Euro area equities.

Market Commentary Q3
The past quarter can be characterised by record high levels of volatility in global equity markets. The early summer Greek crisis seems like a distant memory in light of successive rounds of sharp market movements, which have left nearly all major developed market indices significantly down for the quarter. 
The initial trigger for the instability was China, where the authorities’ reaction to the stock market crash and somewhat unexpected devaluation of the currency in August spread nervousness among investors. Such currency arrangements along with shrinking demand and still-high supply did not help falling commodity prices, which remains the worst performing asset class of the quarter. Although China’s one-off currency devaluation should lead to a modest boost in exports, losing the anchor of a near-fixed exchange rate could at least mean more volatility, if not further weakness in the Yuan. China’s market downfall has been dramatic and painful and the investor sentiment around the globe turned more towards caution as the fear spread. 
In the developed world, the US Fed’s decision to leave US interest rates unchanged, despite reasonably strong domestic indicators, further riled investors and revived uncertainty about the timing and pace of the US rate increases. Although the EU had to face concerns stemming from Greek incapability to pay their debts earlier this summer, economic indicators from Europe have generally been positive, with business and consumer surveys providing reassurance about the Euro area’s growth momentum.

Market Outlook
The summer sell-off caused by higher uncertainty in the markets has left developed market equities looking attractive with the potential for upside from here. As the turmoil in emerging markets seems not to be over yet, developed market equities will be more preferred relative to their emerging counterparts. More specifically Japanese and Euro area equities look more appealing relative to the US ones in terms of capital returns. Continued developed market economic recovery will keep default rates low, while weakness in emerging markets may delay the pace of rate rises. In such an environment, corporate credit, especially high yield, could benefit relative to government bonds.

Region/ Asset Class


To September 30th 2015




Global Equity

MSCI World





MSCI Europe





Nikkei 225




Emerging markets





United States

S&P 500




United Kingdom

FTSE All Share




Global bond

Barclays Global Aggregate









* Gross return, local currency. Source: FE Analytics.