Financial market participants are usually a bit nervous in August, fearful their holidays will be ruined by a significant financial market event. Most of them will have let out a sigh of relief as they emerged into September relatively unscathed.
August was still an important months for markets, as the UK continued to try and negotiate its exit out of the EU, emerging markets reacted to a tightening monetary policy landscape, and Italian politics stole European focus once more.
Global markets in August
Global markets had a mixed month in August; whilst the US performed relatively well, there was weakness in the UK, Europe and Emerging Markets. Some of this pressure on export-led economies will have been stoked by concerns over trade policy.
Turkey and Argentina had a tough month, although they make up a relatively small part of the emerging market equity universe, but it’s certainly a sign that there is a broader concern around what tighter US rates might mean for countries that have very large trade or current account deficits.
Preparing portfolios for Brexit
Moneyfarm generally has the view that a Hard Brexit, or a no-deal Brexit, will be seen as negative for financial markets, triggering further weakness in sterling and UK assets more generally.
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We also acknowledge there is an upside scenario; this could be a second referendum –however unlikely that might be – or perhaps Theresa May could negotiate a deal that the market takes well.
When we’re building the Moneyfarm portfolios, we want to make sure we capture the upside scenario, but also protect ourselves from the downside as best we can.
The Moneyfarm portfolios are currently fairly balanced in terms of sterlings vs non-sterling exposure, depending on their risk level. Our Asset Allocation Team monitor the markets and economic events daily, and will make the necessary adjustments to portfolios when there is greater clarity on the final outcome.
The Italian Budget
The focus in Europe was really on Italy in August, and specifically the Italian Budget. The government has made no secret of the face that it wants to increase spending, despite debt levels already being very high, and Italian bond yields have risen as a result.
UK portfolios don’t have a great deal of Italian exposure, but this question could have a wider impact of European markets more broadly over the next few months.