THE INVESTOR CENTRE
THE INVESTOR
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27
E
quity markets had plenty to worry about
over the summer period. No sooner had
the question of the Greek bailout been
‘resolved’, than the gyrations of the Chinese
stock market – with an associated, and more
pronounced, economic slowdown –
undermined markets. Most major markets
saw signi cant correction; more so for
emerging market assets.
It would be wrong to dismiss these moves
as an overreaction in quiet summer trading.
Yet the US recovery remains strong which,
together with a better tone for European
economies, is a helpful counterweight to
disappointing news elsewhere.
The larger capitalisation stocks continued to
markedly underperform the wider market,
mainly due to the resource sectors.Our
exposure here was reduced in 2014 and earlier
this year; nevertheless,we have some 5% of
the portfolio where there is a question mark
over the long-term sustainability of dividends,
but where we think, to a large degree, current
prices already capture that concern.
We continue to focus upon what we know
and can analyse, i.e. not China, but our
companies’ cash ows in the face of threats
fromAmazon,Google,Net ix,Apple and the
like. Put another way, over the past three years
Tesco has underperformed the mining sector
– stock speci cs matter just as much as, if not
more than, the macro.
J
uly’s global stock gains were erased in
August. Markets sold o on concerns
that the Chinese central bank’s e ort to
devalue the yuan signalled a weaker than
expected economy. Improving economic
data across many developed markets and
a nalised Greek bailout debt deal were
not enough to o set jitters over the more
commodity-driven emerging markets.
Google and Kia Motors were among our
top performers in the period. Google’s
most recent quarterly results suggested that
the company is nally willing to address
its lack of discipline on costs; margins
showed tentative signs of improving, albeit
over a very short period. Kia’s share price
recovered a bit of its multi-year decline,
reacting, we believe, mostly to the nancial
advantages it should get from a depreciating
Korean won.
Applied Materials andTelefônica Brasil
were among our bottom performers during
the period.Applied Materials continues
to be pressured, following its decision to
terminate a merger withTokyo Electron
based on anti-trust concerns from the US
Department of Justice.Telefônica Brasil
is contending with Brazil’s worsening
macroeconomic climate and a depreciating
Brazilian real relative to the dollar.
We fully exited our position in
MasterCard – after a period of solid returns
it was in line with our estimate of intrinsic
value.We also sold Keurig Green Mountain
in favour of more attractive opportunities.
T
he Greek government’s celebration
after the 5 July referendum proved
short-lived as it was quickly forced to
capitulate in the bailout negotiations,
allowing markets to rally. InAugust, weak
growth data from China, a sharp sell-o in
its stock market and a modest devaluation
of its currency proved the catalyst for a
correction in all equity markets, which
continued into September.The prospect of
the Federal Reserve raising interest rates was
another factor keeping investors cautious.
The Federal Reserve kept rates unchanged
in September, citing global economic risks.
The door is open, however, for a rise at any
time and a modest upward move still looks
likely this year, although in the UK it is likely
to be 2016 before we see the rst move.
China is likely to remain a major in uence
on markets, but a hard landing there looks
unlikely and lower commodity prices, which
have resulted from its slower growth, should
bene t consumers and most companies
globally. In Europe, QE and the weak euro
nally appear to be having a positive e ect
on activity.
We made no signi cant change to asset
allocation during the quarter, maintaining
a very cautious stance towards government
bonds. Equities, though not cheap (even
after the recent correction) should,
nevertheless, be underpinned by those low
government bond yields and continuing
mergers and acquisition activity.
ARTEMIS
UK & International Income
Focus is on familiar stocks and away
from China and large caps
ARTISAN PARTNERS
Global Managed
Global
Google and Kia perform well
despite market turbulence
AXA INVESTMENT
MANAGERS
AXA Framlington Managed
Balanced Managed
Asset allocation remains cautious
with a focus on government bonds
Themarket correction
can’t be dismissed as
a seasonal blip
Gainsmade during
Julywere erasedby
August jitters
Amodest rate rise
in theUS still looks
likely this year
Adrian Frost, Adrian Gosden
and Nick Shenton
Dan O’Keefe, David Samra and
James Hamel
Richard Peirson
