Memories of the financial crisis brought investors back to the sharp "sale" of the month – fear of international markets traditionally characterized in October, because it is a month of severe crashes in the history of capital markets around the world.
The sharp fall in markets caused a sharp decline in the US bull market and sent a signal to investors from around the world to prepare for the path of high volatility in the coming period.
According to S & P and Dow Jones, international inventories lost over $ 5 trillion in October, and shares in the US, Europe and Asia are one of the worst months in recent years. The parallel fall in bond prices, which for years has been pushing yields close to the highest levels, has also been added to market concerns.
Causes of falling
A long list of fears "knocked" international markets down last month, removing large profits from key stock market indices that took place in the summer.
Fears that the US economy is on the verge of overheating have caused a sharp increase in bond yields, which caused the first period of intense volatility in the equity market after February, and investors were forced to re-evaluate the fact that the valuations were accurate in many branches.
Then, signs of a slowdown in companies, especially fast companies such as Amazon and Alphabet Inc. (Google), as well as the continuing trade tensions between the US and China caused losses in the stock and bond markets around the world. In Europe, the events around Italy and the smell of a split between Rome and Brussels, as well as political events in Germany along with the immediate departure of Merkel from the leadership of the CDU, a move that changes the balance in the euro area were additional "headaches" investors.
The barometer of international markets, the S & P 500, fell by over 7% in October, the worst month for more than eight years. Stoksx Europe 600 in Europe fell by 6%, and several major Asian indices fell by more than 10%, while Japanese Nikkei recorded the largest monthly losses since 2010. The global MSCI index, with losses close to 7.5%, recorded the worst month since May 2012, and currently it is 15% lower than the highest levels that hit the end of January. It is characteristic that 63% of the global MSCI index is currently on the bear market (down by over 20% compared to the last increase).
They change the strategy
According to BofA, the funds have started and are re-implementing their strategy. After several weeks of liquidation, 1742 out of 2,767 global shares fell by 20% since the last summit. In emerging markets the number of shares on the bear market is 919 out of 1150 shares – 80% of the total – while 1,899 shares in New York have 1,164 or 61% share in the bear market.
The company notes, however, that despite the large fall in the markets, there are recent signs that some investment portfolios show growing interest in the market. The cash position of large BofA customers increased to 10.4% of the entire portfolio, from 10% at the end of September. Meanwhile, 174 fund managers, holding $ 518 billion in managed funds, raised their cash positions to 5.1% of the average portfolio, well above the 10-year average and 4.5%.
He emphasizes, however, that it is too early to change his attitude from badger to bullish, because we are at the end of the current economic cycle, and the Fed has begun and continues to tighten its monetary policy. However, he points out that if the sale turns out to be a precursor to the recession, it can mean a perfect entry point in the next few weeks or months.
"We have redesigned our strategy for the time ahead and are a bit more defensive," says Mike Balkin, portfolio manager at Williams Blair & Co., reducing his exposure to technological stocks and other "growth" campaigns that have tightened valuations, increased his position in the goods sector consumption and health services.
Turbulence and instability
Although the "massacre", as described by analysts, changes market data in October, leading to a period of high volatility, there are many who believe that although international stocks have entered a period of correction and turbulence, the bull market has not finished yet.
"This volatility may last until the end of the year, but the reversal of the market trend in the bear market is different, and market turbulence consists in the correction" – says Pascal Blanque, CIO Amundi. "The bear warning badge is not yet displayed."
The sale from last month is too big and will be partially compensated because the companies will buy shares, according to Goldman Sachs, who "sees" an increase of 6% in the next two months for the barometer on international markets, S & P 500.
Recognizing that there is some risk, the American bank estimates that the bases will continue to support international stock prices. The last sale resulted in a slowdown in the short-term and estimates that continued economic growth and increased profitability of enterprises will be conducive to the renewal of the S & P 500.
According to the American bank, investors should take advantage of high-quality shares with low debt, stable sales and profits as well as a high return on equity. This class of units will outweigh the results when the economy slows down in the late stages of the business cycle, he notes.
The potential negative effects of higher interest rates and trade tensions, coupled with the disappointing corporate profitability in the US and elsewhere, have raised concerns about the state of the global economy, UBS said. Market volatility is expected because we are in the late stages of the current economic cycle, but it notes that it believes that the October sale is a correction in the context of the ongoing bull market, not the beginning of a more steady decline in inventories.
As he notes, the valuations are already near or below the long-term average after the sale. In terms of P / E ratios, the S & P 500 is slightly above the average of 30 years, while the shares of developed and emerging markets are listed at a 20% discount compared to the average over the last 30 years.
Considering these positive factors related to the economy, profitability and equity valuation, it remains "moderately overweight" in global stocks, government bonds in emerging markets, and Italian 2-year bonds. Investors should also perceive the recent volatility as an opportunity to change their portfolios in order to take advantage of the potential for continuing the boom in the coming months.
A new concern from the US increases the nervousness of international markets, and investors closely follow the parliamentary elections held on Tuesday 6 November as political decisions that can affect the economy, decision-making and consumption costs depend on results.
If the Republicans maintain or expand their power in Congress, Donald Trump may be encouraged to follow his political program more energetically, including further tax reforms. On the contrary, if the Democrats get the ground and the party finishes the control of the House of Representatives and perhaps the Senate, it may stifle Trump's policy goals and perhaps lead to a motion of no confidence. Investors are preparing for a divided Congress in which Democrats win in the House, but Republicans are maintaining the Senate, as recent polls show.
Congressional mid-term elections "are usually not an important event on the US market, let alone global markets, but this time it may be different," Citigroup analysts warn.
Democratic domination can "scare" the stock market due to fears of political instability. However, the fall in US stock prices in October suggests that this change may have already been assessed in Congress, so this scenario would not shake up the market significantly.
Even if the Democrats won the House, the chances of a major change in politics can be reduced if the Republicans maintain Senate control. But the large and universal victory of Democrats in both the House of Representatives and the Senate could surprise the market and lead to a new, large sale of shares.
The opportunity for the Democrats to change the Trump rebate package or submit a motion of censure may "hit" investor confidence and confidence in the business. The Republican victory, which would allow them to maintain absolute control over Congress, could lead to an increase in the number of shares, because it will increase the chances for further tax reform. However, such an evolution could also encourage Trab to comply with its protection policy in the field of international trade with even higher import tariffs.
Self-regulation or … a trap for the Athens stock exchange?
The return of uncertainty in international markets and the intense nervousness that was caused by events in Italy appear to be "trapped" when ATHEX, which lost its international rally train, is now facing international risk risks and with Greece in the pre-election period.
October was the third consecutive month of decline for the Greek stock exchange, where losses amounted to 7.45%, while from the beginning of the year the decline amounted to 20.22%. Monthly losses for the banking index amounted to 5.77%, and banks recorded a 37.9% drop since the beginning of the year.
November is expected to be a month of intense volatility for both the Greek and international stock exchanges after October, and turnover growth will be the key to the market. At present, there is no catalyst that could open … an appetite for foreign portfolios, because this month most of their twelve-month positions are closed due to the redesign of the December strategy.
However, recent meetings have shown, according to analysts, that the Greek stock exchange is making self-regulation efforts, and buyers are often imposed on sellers even for auction, using the shallow market and sellers' reluctance to aggressive moves, because they adhere to a ceasefire. The events in the banking industry will be key for the course of ATHEX, and investors will demand improved mobility in accelerating the loss of bank loans from "red" loans.
According to Merit, in November the range of the general index ranges from 580 to 700 points. Market conditions have not changed significantly, but volatility has increased to key international stock indices in the US, Europe and Asia. In our neighborhood, problems with Italy and Turkey are open and are expected to remain in the foreground.
As we note, "we focus on low EV / EBITDA (the average for FTSE Large Cap is estimated at 7.5, and for GFCF on 7.2), satisfactory and predictable cash flow from operating activities sufficient to support the investment program (we also look at the ratio of parts property, plant and equipment to amortization at least close to the unit, if not higher) and dividend income above 2.5%. "
source of capital.gr