Investment Bulletin - 27th Feb 2015

1. This Market Bulletin has been produced in association with Jupiter. It’s intended to provide you with a look back at the events that have affected the
performance of global equity markets in the last fortnight. This is a general market update and should not be considered a comprehensive or sufficient basis for
making decisions.
For those that believe in mean reversion*, January was a good
example. Global equity markets, which had struggled to make
much headway in 2014, posted decent returns for the month,
whereas last year’s star performer, the US market, fell in dollar
terms. Many market strategists believe that January sets the
trend for the year; whether this holds true in 2015, only time will tell.
One thing that does not appear to be mean reverting, not yet
anyway, is the size of central bank balance sheets. The US Federal
Reserve may have tapered their monthly quantitative easing (QE)
down to zero in September 2014, but others have taken on the
QE baton. The early running was made by Japan which boosted
its efforts in October 2014. Then in January 2015, Mario Draghi,
President of the European Central Bank (ECB) surprised markets
by announcing a larger than expected QE programme, committing
to purchase €60bn per month of predominantly sovereign bonds
until at least September of 2016, or until inflation came close to
the target of just below 2%. Given the tepid growth in the eurozone
over recent years and the experiences of QE elsewhere in the
world, the ECB may need to run its printing presses well beyond
September next year.
That said, it must be noted that this outright QE is in addition
to the numerous policy measures that the ECB has taken in recent
years and months, e.g. holding its deposit rate in negative territory.
This has already forced corporate treasurers and other cash
investors out of true cash and into the perceived safer end of the
sovereign bond world, depressing yields and driving many bonds
into negative territory – meaning that some investors are happy to
lose money on these investments, just to ensure safe receipt of their
capital in the future, though of course this is never guaranteed. This
has the potential to have something of a domino effect, driving
investors into riskier assets in search of more attractive yields, which
in turn bumps others into higher risk assets. This dynamic will only
be further exacerbated by the ECB entering the market, buying
up low-risk bonds, resulting in this combination of the ECB’s
policies potentially having a material impact on risk asset prices.
That is the theory anyway, but in practice, spanners can all too
easily be thrown into the works. A potential one was the election
of the far left Syriza party in Greece. It should probably come as
no surprise that a country whose GDP has fallen 25%** is looking
for an escape from the status quo, but one has to hope that they
do not follow through on some of their more extreme policies.
Europe has by no means been alone in its loosening of monetary
policy. Others include Singapore, Denmark, Canada, India,
Turkey, Egypt, Romania, Peru, Albania, Uzbekistan, Pakistan and
Switzerland. The latter sent shock waves through global markets
by dropping its peg to the euro in January; the Swiss Franc
appreciated against the euro by 25% in short order before falling
back somewhat. Currency market dynamics were an area of
material moves in 2014, and 2015 looks like it could see more of the
same. We continue to hedge*** the majority of our direct euro and
yen exposure within the Jupiter Merlin Portfolios, as we envisage the
ongoing QE taking place in these regions as likely to depreciate
their currencies.
As always, cases can be made for market pullbacks or further
market momentum. Top of the concerns’ list has to be the conflict in
Ukraine and the continuing impact of sanctions on Russia. However,
short of geopolitical deterioration, we remain buoyed by the impact
of low energy prices for the global consumer, coordinated stimulus
from Japan and Europe and an improving employment picture in
the US and UK. We continue to believe that well selected equities
offer investors an attractive risk-return proposition over the medium
term and that talented fund managers have the potential to
outperform.
*mean reversion is the process of moving back towards the average over time
**Source: Bloomberg, 31/12/2008 to 31/12/2013
***Hedging involves making balancing or compensating transactions for an investment,
with the aim of mitigating potential losses.”
Weekly Statistics (source: FT)
Key performance indicators (as at Friday 13 February 16:34 GMT) Day-by-day analysis of FTSE 100 Index
In association with
CURRENT
VALUE
10 DAY
% CHANGE
FTSE 100 6, 946 + 1.07%
Dow Jones 18, 194 + 1.23%
Nikkei 225 17, 797 + 4.83%
Opus Financial Consultants is an appointed representative of Openwork Limited,
which is authorised and regulated by the Financial Conduct Authority.
The content of this bulletin, including the figures, is amalgamated from various
sources and represent a snapshot of the market. Stock market and currency
movements mean the value of your investment can go down as well as up and you
may not get back the orginal amount invested. Past performance is not a guide to
future performance.
MARKET BULLETIN 27 February 2015
Opus Financial Consultants
Cowdray House 102 Crown Street Aberdeen AB11 6HJ
T 01224 765350 F 01224 584383 M 07989 410254
donald.love@openwork.uk.com