With the last week of November and Thanksgiving ahead, the end of 2013 is quickly looming. It’s been a year filled with both highs and lows, and there still seem to be a few of each left in store for us…. With that, taking a look back at the markets last week, it was a mostly positive week as the S&P barely climbed above where it started the week, but it was just enough to help US markets close at new record highs. Over in the UK the FTSE was slightly down -0.2% while in Asia the Hang Seng rose about 1.2% on the week. There was some initial volatility earlier in the week with looming concerns about whether the FED would start winding down stimulus at their Dec 17-18 meeting, but data towards the end of the week boosted confidence and pushed most indices higher.
Given the back and forth movements in markets, it may be timely to revisit our VIX index. For those who missed a lesson on reading VIX figures from a previous Money Matters, the VIX is a short term gauge on the fear around the US S&P with an outlook of about three months. Essentially, the lower the VIX number the more confident the markets are, while a higher VIX number tends to indicate increasing volatility. It’s only one of many indicators and tools used to gauge market confidence, but it’s interesting to see the VIX currently sitting at its lowest level in the past three months. Not to mention that it’s not far off its low on the year. Through the course of 2013, we’ve seen the VIX sit been between 11 and 21, so its current 12.26 is much closer to its 2013 low than it is to the high we’ve seen. We do know that the VIX will fluctuate (just like any market or index will), but for now it seems that there is less concern around the S&P than one could expect considering the stimulus reductions and US debt ceiling issues coming up over the next three months!
Over in the Asia region, the markets saw more positive news from China’s Third Plenum to open up more economic reforms and continue to evolve as an economic powerhouse. South East Asia got some benefit from this, and although the Asia region still remains behind the levels seen in the US indices, the potential for growth does look promising in the Asia region. We’re not saying that Asia will rise and perform as US markets have this year, as the Asia markets will be volatile and still face obstacles in the near term, but the slow and upward trends that started towards the end of summer look to be gaining some traction. And with their high projected GDP’s, we feel the Asia region will come out with shining colors over the medium term. Particularly so if we are to look at the South East Asia region alone and factor in that they have a collective GDP of around 5.5% and combine to make for about 80% of the direct investment into China this year, thereby reflecting their increasing trade and economic growth.
However, as concerns continue to rise, we can expect the Asia region to feel more of the brunt as investors have typically been trending towards UK and US investments during such times of uncertainty. Investors haven’t turned to gold however, which has been favored in the past, but at some point inflation will return, bringing this sector back to the debate boards at which time perhaps we’ll see a rally (in gold). In the mean time, with upcoming economic meetings around the globe, we’ll continue to encourage investors to retain a balanced and diversified portfolio.
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.
Austen Morris Associates Wealth Management & Investment Team
Darren Cox
Co-Head of Portfolio Management
