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Memories of the financial crisis brought investors back into the month's "sell-off", a fear of international markets, traditionally characterized in October, as it is the month of the biggest upheaval in the history of financial markets around the world.
The sharp fall in the markets has severely dampened the US bull market and prompted investors around the world to prepare for a high volatility trajectory for the coming period.
According to S & P and Dow Jones figures, international stocks lost more than $ 5 trillion in October, as US, European and Asian equities are one of the worst months in recent years. The parallel decline in bond prices, which has brought yields back to their highest level in years, has also added to market concerns.
The causes of the fall
A long list of concerns "hit" the international markets last month, removing the big profits from the major stock indexes that occurred during the summer.
Fears of overheating the US economy led to a surge in bond yields, leading to the first period of highly volatile stock markets after February, forcing investors to re-examine the fact that valuations were accurate in many areas.
Next, signs of slowing growth in businesses, particularly high-speed companies such as Amazon and Alphabet Inc. (Google), as well as ongoing trade tensions between the US and China, resulted in losses of stocks and bonds worldwide. In Europe, events in Italy and the gap between Rome and Brussels, as well as political developments in Germany with the imminent departure of Merkel in power of the CDU, a decision that changes the balance in the euro area, have created additional "headaches" investors.
The international market barometer, the S & P 500, fell more than 7% in October, its worst month in more than eight years. At the European level, Stoxx Europe 600 fell by 6%, while several major Asian indices fell by more than 10%, the Japanese Nikkei registering the largest monthly losses since 2010. The MSCI World Index, with losses close to 7.5%, recorded its worst month since May 2012 and is now trading 15% lower than the peak reached in late January. It is typical that 63% of the global MSCI index is now in the downtrend market (down more than 20% from the recent high).
They change strategy
According to BofA, the funds have started and are redeploying their strategy. After several weeks of liquidation, 1,742 of the 2,767 global shares have fallen 20% since their recent peak. In emerging markets, the number of shares in the bear market is 919 out of 1,150 shares – 80% of the total – while 1,899 shares in New York represent 1,164 shares, or 61% in bearish territory.
The company notes, however, that despite the recent sharp downturn in the markets, some investment portfolios are showing increasing interest in the market. The cash positions of BofA's large clients increased from 10% at the end of September to 10.4% of the total portfolio. Meanwhile, 174 fund managers, whose managed funds represent $ 518 billion, raised their liquidity to 5.1% of the average portfolio, well above the 10-year average and 4.5%.
But she points out that it is too early to change from bearish to bullish, as we are at the end of the current economic cycle and the Fed has started and continues to tighten monetary policy. But he points out that if the sale looks like a precursor to a recession, it could be an excellent entry point in the coming weeks or months.
"We have rethought our strategy for the future and are a bit more defensive," said Mike Balkin, portfolio manager at Williams Blair & Co., reducing exposure to tech stocks and other "growth stocks" that had tightened. valuations, increasing its position in the consumer goods and health services sectors.
Turbulence and volatility
Even though the "slaughter" described by badysts in October is changing the market data and leading to a period of high volatility, many people think that, even if international equities have entered a period of correction and turbulence, the bull the market is not over yet.
"This volatility may last until the end of the year, but the reversal of the bear market trend is different and the market turmoil is to make a correction," says Pascal Blanque, CIO of the US. ; Amundi. "The bear market alert badge is not flashing yet".
The sale last month is excessive and will be partially offset by the buyback of shares by companies, according to Goldman Sachs, who "sees" a 6% increase over the next two months for the barometer of international markets, the S & P 500.
While acknowledging that there are some risks, the US bank believes that fundamentals will continue to support international stock prices. The recent sell-off has exacerbated the slowdown in growth in the near term and predicts continued growth in the economy and increased profitability for businesses that will support the S & P 500's recovery.
In the view of the US bank, investors should turn to high-quality, low-debt stocks, stable sales and earnings, and high return on equity. This stock clbad will outperform when the economy slows down in the final stages of the economic cycle, he said.
The potential negative effects of rising interest rates and trade tensions, coupled with disappointing profitability by US and foreign companies, have raised concerns about the state of the global economy, UBS said. Market volatility is expected as we are in the last stages of the current business cycle, he noted, but considers that the October sale is a correction of the current bull market rather than the beginning of the market. a more stable decline in equities.
As he points out, valuations are now close to or below long-term averages after the sale. In terms of P / E ratios, the S & P 500 Index is slightly above the average of the past 30 years, while developed and emerging market equities are trading at a discount of 20% compared to the average of the last 30 years.
Given these positive factors related to the economy, profitability and valuation of equities, it remains "overweighted moderately" by global equities, emerging market government bonds as well as Italian bonds. at 2 years old. Investors should also see the recent instability as an opportunity to reorganize their portfolios to take advantage of the continuation of the bull market in the coming months.
The American factor
The United States is worried about the new nervousness of the international markets. Investors are closely monitoring the mid-term elections held on Tuesday, Nov. 6, as political decisions likely to affect the economy, decision-making and consumption costs depend on the results.
If Republicans maintain or extend their power in Congress, Donald Trump could be encouraged to follow his political agenda with more vigor, including new tax reforms. On the contrary, if the Democrats gain ground and the party eventually controls the House of Representatives and possibly the Senate, this could hinder the objectives of the Trump policy and eventually lead to a vote of no confidence. Investors are preparing for a divided Congress, in which Democrats will win the House, but Republicans will sit in the Senate, as recent polls show.
The mid-term Congressional elections "are generally not a major event for the US market, let alone for world markets, but this time, things could be different," warn Citigroup badysts.
Democratic dominance could "scare" the stock market because of concerns about political instability. However, the fall in US stock prices in October suggests that this change has already been evaluated by Congress and that, therefore, this scenario would not upset the market.
Even if Democrats win the House, the chances of major political change can be reduced if Republicans retain control of the Senate. But a broad and universal victory of Democrats in the House and Senate would surprise the market and lead to a mbadive new sale of shares.
The possibility for Democrats to alter Trump's tax relief measures or to introduce a motion of censure could "shake" the confidence of investors as well as companies. A Republican victory that would allow them to maintain absolute control over the Congress could lead to a resumption of equities as this would increase the chances of a new tax reform. However, such an evolution could also prompt Trab to follow its international trade protection policies with even higher import duties.
Self regulation or … trapping for the Athens Stock Exchange?
The return of uncertainty on the international markets and the extreme nervousness provoked by the evolution of the situation in Italy seem to be for the moment "trapped", the ATHEX, which, having lost the train of international rally, makes now facing an international challenge. without risk and with Greece in the pre-election period.
October was the third consecutive month of decline for the Greek stock market, with losses rising to 7.45%, while since the beginning of the year the decline has reached 20.22%. The monthly losses of the banking index stood at 5.77%, while banks have recorded a decline of 37.9% since the beginning of the year.
November is expected to be a month of intense volatility for Greek and international stock exchanges after October, with the dynamism of the turnover as a key factor in the market. For the moment, no catalyst could open the interest of foreign portfolios, as this month closes most of their positions over twelve months for the redesign of the December strategy.
According to badysts, however, recent meetings have shown that the Greek Stock Exchange is making efforts in the area of self-regulation, as buyers are often forced to sell at auctions, taking advantage of the shallow market and the reluctance of sellers to sell their products. aggressive approaches. as they adhere rather to a ceasefire. Developments around the banking sector will be critical for the evolution of the ATHEX, as investors are demanding greater mobility in the area of accelerating the write-down of bank loans due to "red" lending.
According to Merit, the range of the general index is between 580 and 700 points for the month of November. Market conditions have not changed significantly, but volatility has increased for major international stock indexes in the United States, Europe and Asia. In our neighborhood, the problems with Italy and Turkey are open and should remain in the foreground.
As we underline, "we focus on a low EV / EBITDA (the average for the FTSE Large Cap is estimated at 7.5 and for the GFCF at 7.2"), satisfactory and predictable operational cash flows, sufficient to serve the investment program (we also examine the proportion of property, plant and equipment in depreciation that is at least close to unity, if not greater) and a dividend yield greater than 2.5%. "
source capital.gr
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5/11/2018 0:50
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