|
 Of 21 major financial benchmarks tracked by Reuters, only two are up
so far this year as slowing growth - most worryingly in China - an
emerging market crisis and prolonged uncertainty on when U.S.
interest rates might rise have slammed markets around the world.
The exceptions - the U.S. dollar and 10-year U.S. Treasury bonds -
have historically been seen as cash-like havens and have posted
returns of 6.2 percent and 2.5 percent, respectively.
In the three months to September, they rose 0.4 percent and 3.0
percent, respectively, with U.S.-based government-Treasury funds
drawing seven straight weeks of inflows totaling $10 billion,
according to Lipper data ended Sept. 23.
Only German and Italian government bonds joined the dollar and
Treasuries in positive territory during the quarter.
Graphic: http://link.reuters.com/pes94w
That leaves investors in a quandary: do they throw caution to the
wind in the fourth quarter and attempt to claw back their losses? Or
do they hunker down and ensure that the damage done in the previous
three doesn't get any worse?
Certainly, the investment backdrop got dramatically more challenging
in the third quarter. The volatility in those three months accounts
for most of the year-to-date damage investors have suffered, and in
some cases all.
The biggest year-to-date declines have been in copper (-21 percent),
emerging market equities (-18 percent) and Brent crude oil (-16
percent), the data show.
Billionaire U.S. activist investor Carl Icahn is convinced that a
serious downturn is looming.
"I am more hedged than I have ever been," Icahn told Reuters in an
interview this week.
Equities had a lousy quarter, and not just in the emerging world.
The S&P 500 had its worst three-month performance in four years and
Japan's Nikkei had its worst since the three months after Lehman
Brothers collapsed in late 2008.
DOLLAR'S CROWN SLIPPING?
Investors in other markets suffered much bigger losses in the three
months to Sept. 30. Chinese A shares listed in Shanghai plunged
nearly 30 percent and Brent crude oil shed a quarter of its value.
Analysts have been falling over themselves in recent weeks to issue
the most bearish outlook on commodities and emerging markets. Among
the most notable was Goldman Sachs's note earlier this month that
oil could fall as low as $20 a barrel.
Such dramatic price swings often herald an imminent reversal. JP
Morgan Asset Management's strategists aren't alone in retaining a
positive outlook for the fourth quarter, arguing that investors have
simply gotten too bearish.
[to top of second column] |
"Given that we consider U.S. recession risk to be low, the returns
offered by higher-quality high yield credit are now attractive
relative to equity," they wrote in a recent client note.
"We keep our optimism on the U.S. economic outlook and as such
remain overweight developed market equities versus emerging markets,
and overweight the U.S. dollar versus emerging market currencies,"
they added.
The dollar was the best-performing asset of all in the third
quarter, rising 6 percent against a basket of major counterparts on
expectations the Fed will soon lift U.S. rates and as investors
sought a safe port in the emerging market storm.
That is the tide the dollar doubter HSBC is swimming against, almost
alone. This week, it issued even more bullish euro forecasts,
calling for $1.14 at the end of this year from $1.05 previously, and
$1.20 at the end of next from $1.10.
But anti-consensus calls that bold are few and far between,
especially with Fed Chair Janet Yellen's finger hovering over the
rate hike trigger.
New York Fed President William Dudley said on Monday that rates will
"probably" rise this year, perhaps as soon as October if the economy
continues to improve. But "lift off" expectations have been
consistently dashed for well over a year now.
"There is not enough global growth to go around and the Fed realizes
it," Jeffrey Gundlach, who oversees DoubleLine Capital, told
Reuters.
"If we are talking about global GDP and you gave me an over and
under number, I will always take the under number," Gundlach said.
The deteriorating global outlook will force the Fed to wait until
next year, he said.
In its latest Global Financial Stability report published on
Tuesday, the IMF warned that emerging market firms, which have
amassed a record $18 trillion of debt, need careful monitoring as
the era of record low interest rates nears its end.
(Reporting by Jamie McGeever and Jennifer Ablan, editing by Larry
King)
[© 2015 Thomson Reuters. All rights
reserved.] Copyright 2015 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |
