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Market update

October Market and Economic Update

Weaker economic data from some of the world’s regions and the prospect of tighter US monetary policy saw investors re-assess their appetite for risk through the month. Currency was a material factor in determining the total return outcome for sterling-based investors; the US dollar continued to strengthen against all currencies, whilst the euro and yen weakened against sterling. In credit, high yield bond prices also retreated, in part related to an active new issue calendar.

  • Our long-term view is largely unchanged and we continue to believe our more cautious outlook is rational. Global growth remains fragile despite underlying strength in the US, while China remains a major concern to the global economy in the medium term
  • While the Fed’s decision to maintain the rate of taper has helped create short-term stability, we believe it to be behind the curve and complacent over the prospects of rate tightening
  • Excess liquidity has decreased yields year to date, and continues to drive investor behaviour further along the risk spectrum
  • The distorting impact of excessive monetary stimulus is apparent across all asset classes
  • The equity re-rating looks to be complete, reflecting greater political and economic confidence. Developed world equities are expensive against their own history and are approaching fair value relative to bonds

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