We may well be reaching an inflection point with interest rate rises in the US but many other countries are continuing to stimulate their economies and weaken their currencies, in turn, making them more competitive.
Good news seems to be treated as bad news and vice versa when it comes to equity and bond markets. Policy makers in the US appear damned if they do and damned if they don’t raise interest rates. As I write however, the expectation of a rate rise has now been pushed on to March 2016. The Federal Reserve has stated that worries around a China slowdown and its potential impact on global growth is one of the main reasons for the delay.
Onto China then (for more information and views click here) Basically, the reaction to weaker Chinese growth is as unreliable as the data emanating out of the country!!
So, where does this leave investors?
Firstly, expect volatility to be significant with huge demarcations between sectors. This reinforces the need for active management. Investing into just one or two index trackers is likely to lead to many sleepless nights! For example, the difference in performance of the commodity sector vs. UK smaller companies from April through to September was significant.
Secondly, the last few months have allowed us all to be reminded once again what risk is all about. In our experience, too many people take more risk than they need.
Investors MUST ensure that their investment and pension portfolios have a strong connection to what they wish to achieve in the future. In other words, the emphasis should be on planning first and foremost, which then defines the amount of risk you need to take. Then you can set about building and constructing a portfolio with confidence.