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Market update

November Market and Economic Update

Equities and high yield corporate bonds rebounded strongly in October as Central bank language and actions supported a return of investor risk appetite. In Europe markets were buoyed by comments from the European Central Bank (ECB) president, suggesting the ECB stands ready to expand its monetary support programme further to fend off the risk of a renewed slump in the Eurozone.

Meanwhile in China, the Central bank cut its policy interest rate and reserve-requirement ratio for banks in an attempt to boost credit growth in response to a continuing gradual slide in quarterly growth reports. In contrast, a statement from the US Federal Open Market Committee raised the possibility of an increase in interest rates at its December meeting.

Our view – general summary

• Equity valuations continue to receive liquidity support – Central banks in major developed economies have added over $7 trillion in liquidity since 2007. The European Central Bank and Bank of Japan are to inject more than $1 trillion by the end of 2015 and global interest rates remain highly accommodative.

• The asset allocation committee decided to further de-risk portfolios in October and remains concerned that the global economy and risk asset markets may be at or approaching an inflection point. Weakness in risk assets over the summer is seen as an early warning sign, and downside risks are currently outweighing upside potential in our outlook.

• We are watching global monetary policies closely, but we see a growing risk that Central banks are losing control of global markets as policies such as Quantitative Easing become discredited. We may see a shift in focus to fiscal policy action as politicians globally respond to the wealth inequality that recent policies have exacerbated.

• As a result, the committee has further reduced equity exposure, specifically in the UK and Japan, two regions particularly sensitive to global markets. 

 

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Important Information

The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. This is not a personal recommendation or advice to invest. Past performance is not a guide to future performance.

Different funds carry varying levels of risk depending on the geographical region and industry sector in which they invest. You should make yourself aware of these specific risks prior to investing.

Past performance is not a guide to future performance.

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