Fundamentals vs. Sentiment

Fundamentals vs. Sentiment

Fundamentals vs. Sentiment 384 394 AMA Team

Screen_Shot_2013_08_26_at_5.39.46_PMGood day to everyone and welcome to the last week of August. We saw little movement last week in the developed markets, where the UK FTSE started the week on a downtrend only to then end the week just about where it started. The US S&P had a slow but steady week and ended up 0.6%, while in Asia there was a lot more activity, including that of the Hong Kong Hang Seng which ended down 1.9%.
The South East Asian markets got hit fairly hard last week due to credit outflows which caused some dramatic movements with some regions dropping double digits in the last week alone. Despite the frenzy, concerns seem to have subsided just as fast as they arose, with most indices in the South East Asia region already reversing and starting to recover some of the losses. Fundamentally, the region remains full of potential in the medium to longer term, but we would expect some of the short term volatility to continue. However, as movements, especially as we’ve seen recently, can be quite dramatic and happen quickly, we would encourage investors to ride through the volatility. Current regional sell offs have widely been considered excessive and guided by sentiment as opposed to negative fundamentals, and thus should be viewed as a buying opportunity for investors to potentially bolster holdings in the region to further growth opportunities when the markets stabilize. Particularly given that fundamental indicators point towards this.
Back over in the US, the main focus remains that of the upcoming FED meeting in mid September as investors continue to debate whether this will be the meeting where a possible stimulus reduction, or time frame for reduction, is announced. Opinion remains at a headlock of 50-50…. In that 50% of people feel September will be the key meeting for a shake up, while the other 50% of people are leaning towards expecting a delay (in stimulus decision) until the FED’s December meeting. Either way, it will likely continue to raise short term concerns and result in further short term market volatility.
Screen_Shot_2013_08_26_at_6.03.41_PMBoth issues of ASEAN sectors and the US as outlined above, were heavily discussed at our recent Austen Morris Investment Board meeting. Collectively, our view from this meeting was to encourage investors to continue buying into the South East Asian region as fundamentals support the longer term outlook, not to mention that at today’s value prices, this sector should look attractive to most investors. Another key point worth noting was the consensus that bonds remain a potential area of concern due to the fact that over the past few months, bonds have been thrown into the same boat regardless of region or government, and this would have a direct impact from any stimulus changes or announcements. For this reason, clients invested into bonds are (and potentially will be) advised and encouraged to replace any current bond holdings with a more stabilizing fund to avoid any potential concerns that may, or may not arise from the central bank meetings scheduled over the coming weeks. Other topics of discussion included that of gold which we know is a talking point amongst investors given its recent poor performance and substantial losses, but is believed to still be a key part to a portfolio for hedging against inflation and despite losses, a holding that seeks to benefit from a bounce-back. Equally, as the northern hemisphere moves through from summer to autumn and winter, and incorporates some of the more influential regions, the natural progression in to heating and thus energy should see this sector perform, whilst our appetite for growth through the ASEAN sectors as already noted remains, despite recent volatility.
Screen_Shot_2013_08_26_at_6.08.51_PMWith all of that said, it will be important to consider this potential adjustment in light of the overall picture, whilst also retaining a balanced and diversified strategy. We also still view having exposure to both developed and emerging equities, a mixture of commodities including energy and precious metals, as well as some funds with a degree of stability as important, and in order to achieve balance and diversification. This also stands to then provide investors with the ability to rebalance and adjust as the markets play out, rather than putting all eggs in one basket. And for anyone who thinks they’ll be able to predict the central decisions, and also predict how the markets will react to any changes, we’re guessing they’ll likely be happily sitting on the beach (and we’ll be jealous). But it’s our guess that most who attempt this may be surprised by results at the end of the day.
For Austen Morris Associates’ investors – talk with your advisor about any repositioning to take advantage of markets at this time. For more information about Austen Morris Associates please visit our website.
Darren Cox
Co-Head of Portfolio Management
Austen Morris Associates Wealth Management & Investment Team
www.austenmorris.com

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