Investment Newsletter August 2014
Expect the Unexpected By Mike Deverell Investment Manager
Markets have fallen back recently but have remained remarkably resilient. As I write, the FTSE 100 is at around 6,630 (the afternoon of 12 August), down over the past few weeks but still within 3.5% of its recent peak at around 6,870. We had an interesting conversation on this subject in the office recently. I was asked why I thought markets had fallen. My response was that this was the wrong question to be asking! The right question was (in my view) “why haven’t they fallen any further?” There are plenty of worrying events in the news recently that you will all be aware of: •
Israel and Gaza
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The advance of Islamic State (formerly known as ISIS) in Iraq and Syria
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Civil war in Ukraine including heightened tensions after the shooting down of a Malaysian airliner, Russian troops at the border and mutual sanctions between Russia and the West
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The outbreak of Ebola in Africa
We mustn’t also forget the other preoccupation of markets, fretting about when central banks will cease stimulus and start increasing interest rates! With all of this going on, why aren’t equity markets through the floor and the oil price through the roof (in actual fact, the latter is down)? We are not geopolitics experts, but my non-expert summary is that things are pretty bad right now. This brings an odd level of comfort, in that despite all this uncertainty the markets have only reacted in a relatively minor fashion. As a result, should things improve then we could possibly see quite a sharp rebound.
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