Geopolitical tremors ensured the financial markets were busier than expected in August, lifting volatility levels off historic lows.
In America, protests in Charlottesville added pressure to a White House reshuffle and the devastating impact of Hurricane Harvey seems to have altered the backdrop for discussions over raising the US debt ceiling.
The loudest noise came from the strained relationship between North Korea and the US, however, with missile tests dominating the news.
Whilst this is a lot for investors to process, the markets have largely ignored these geopolitical threats, with monthly US equity volatility still well-below historic trends.
It can be hard to quantify how much risk the markets are pricing in, but it seems clear that investors aren’t expecting this bickering to spill into nuclear war.
The consensus seems to be that tensions will begin to settle, perhaps through more sanctions and negotiations.
Outside of the US, August was a good month for emerging markets. China has proven to be more resilient than expected, and fears of slowing growth are gradually fading. In Brazil, President Temer wasn’t impeached, a result that was welcomed by markets.
Although volatility continues to be low versus history, taking on more risk in this environment could leave investors exposed.
Moneyfarm portfolio performance
During August, all of our model portfolios delivered positive returns ranging between 0.4% and 2%, with mid-risk portfolios returning around 1.9%.
August was a strong month for UK bonds but most performance was driven by currency movements. Equity markets in the developed world were generally flat but sterling weakness has helped investors in the UK.