THE INVESTOR CENTRE
THE INVESTOR
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41
I
n the fourth quarter of 2015, central
bank policies were at the forefront as
the US was on a path diverging from other
developed economies. US data releases
were largely positive as third-quarter GDP
was raised higher; and although the Federal
Reserve left rates unchanged in November,
markets priced in the Federal Reserve rate
hike that came later in December. Eurozone
third-quarter GDP fell short of expectations,
although consumer con dence improved, and
investor and business con dence surprised
to the upside.The European Central Bank
strongly hinted at a further easing round by
the end of the year, but surprised markets
by introducing measures that were below
expectations. In China, service sector activity
accelerated and retail sales posted solid gains.
Japan’s economy slipped back into recession
as GDP contracted by an annualised 0.8%
in the third quarter.Australia’s employment
report came in well ahead of expectations
as employers added 58,600 jobs and the
unemployment rate dipped to 5.5%.
UK manufacturing production rose more
than expected in September; however growth
later slowed in November and the de cit
widened from £1.07 billion to £4.14 billion
in October, driven by an increase in imports.
Despite some good domestic demand, the
UK overall appears to be experiencing a
slight loss in momentum in short-term
cyclical growth.We therefore think the Bank
of England will not see the urgency in raising
rates at this time.
W
orsening political situations and
low commodity prices continued
to impact business conditions in a number
of countries during the fourth quarter.We
expect those headwinds to persist and to
bring about a narrowing of opportunities in
emerging markets. In Brazil, SouthAfrica and
Indonesia, for example, we reduced portfolio
positions in response to deteriorating
company fundamentals. In these countries,
we seek to own only well-situated businesses
that will bene t when conditions improve.
Meanwhile, we have been increasing
the portfolio’s allocation to Mexico,
where a favourable investment backdrop
has presented attractive opportunities for
bottom-up stock-picking.We have also added
to holdings in oil-importing countries such
as India and the Philippines, which stand to
bene t from the falling price of crude.
Due to less favourable conditions in other
countries, including China, we anticipate
maintaining portfolio weights near or below
current levels.While certain geographic
regions in China are slowing, the country as a
whole continues to be both a manufacturing
powerhouse and a world leader in innovation.
However, over-investment has resulted in
intense competition in several industries.As
a result, competitive advantages have been
more eeting and long-duration growth
companies have been less common in China
than in several other countries. In addition,
rich equity valuations remain a concern,
especially in China’sA-share market.
WELLINGTON MANAGEMENT
Gilts
UK Gilts
UK losing momentum means rate
rises may be delayed
WASATCH
Emerging Markets Equity
Favourable investment backdrop
make Mexican stocks attractive
USondi erent path
to rest ofworldwith
central bankpolicy
Headwinds set to
reduceopportunities
inemergingmarkets
Ajay Krishnan and Roger Edgley
Haluk Soykan
T
he last couple of years have been a
di cult time for value investors such as
ourselves; however, the enhanced volatility
of the past two quarters could presage better
opportunities in global equity markets.
With the Federal Reserve embarking
on interest rate normalisation in the US
and the Chinese juggernaut continuing to
grind down, we suspect we have not seen
the end of unsettled markets and, if the
recent volatility persists, we feel we are well
positioned to take meaningful advantage.
In times like these, we are reminded of Ben
Graham’s cautionary parable of‘Mr.Market’,
the obliging, but moody fellow who turns up
every day at the shareholder’s door o ering
to buy his shares at a price. Depending on
his mood, that price could be absurdly high,
perhaps about right, ridiculously low, or
somewhere in between.AsWarren Bu ett
has counselled:‘Mr.Market is there to serve
you, not to guide you. It is his pocketbook,
not his wisdom, that you will nd useful. If
he shows up someday in a particularly foolish
mood, you are free to ignore him or to take
advantage of him, but it will be disastrous if
you fall under his in uence.’
We try to put Mr.Market’s anxiety into
perspective, and behave rationally, so that
we can capture some of the rewards that we
believe will come in the future.
TWEEDY, BROWNE
Satellite manager: Global Equity
More market uncertainty likely due
to US rate rises and China slowdown
Volatilitymay lead to
better opportunities in
global equitymarkets
William Browne, Tom Shrager,
John Spears and Robert Wyckoff
