Highlights – The October Market Sell-off: What’s Next?

In October, equity and bond markets experienced large losses. 

Looking Back

The sell-off in both markets was precipitated by a tightening of liquidity conditions and simmering trade tensions. Firstly, interest rates were pushed higher by the US Federal Reserve tightening. Secondly, US dollar strengthened as investors fled emerging market risk. Lastly, Brent oil reached US$85 per barrel. The twin developments of higher oil prices and failed US-China trade talks were interpreted negatively by investors, which pushed up the value of the US dollar as it was seen as safe haven asset. This in turn put pressure on Asian currencies and financial markets.

Looking Ahead

The current market disruption reflects deleveraging as the US central bank takes the lead in reversing quantitative easing or QE, shifting away from years of zero interest rates. While global growth expectations may be a touch lower, investors should focus on the longer term - economic fundamentals remain sound and the global economy outlook is still positive with limited risk of a recession in 2019. The sell-off in some markets has instead created opportunities for long-term investors. It is important to be cautious and selective, focusing on good quality assets that offer attractive value.

 

Multi-Asset team, Fullerton Fund Management 

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