October Market Commentary

The end of September, and the end of the third quarter of 2015 – a quarter which, as all the financial press reported, was the worst for global equities since 2011. As CNBC put it:

A sustained collapse in commodity prices, China’s stunning market rout followed by its shocking currency devaluation as well as fears of a Greek default and a US interest rate hike were some of the factors that made the past three months a summer to forget for investors.

For September itself, the damage was muted. Yes, virtually all of the world’s major markets fell, but by far less than they’d fallen in August. Of the markets we cover in this bulletin Japan suffered the biggest loss, down by 8% in the month.

Elsewhere there was plenty of news to take investors’ minds off their half-empty glasses. Alexis Tsipras and the far-left Syriza coalition won (yet another) general election in Greece, albeit with a smaller percentage of the vote than they’d previously received. In the UK Jeremy Corbyn – a 200/1 outsider at the start of the contest – became the new leader of the Labour Party with 59.5% of the vote.


Let’s get the bad news out of the way first. The FTSE 100 index of leading shares closed September at 6,062 having started the month at 6,248, a fall of 3%. The market was down by 7% in the third quarter, and is down 8% since the start of the year.

There wasn’t much positive news in the business sector either. While the month started with the announcement that Nissan were investing £100m in their Sunderland plant to build the new Juke model in a move that would ‘safeguard thousands of jobs,’ it ended with a bombshell for Teesside, as SSI were forced to mothball their Redcar steel plant with the loss of 1,700 jobs. As always, the job losses will be multiplied as the impact ripples down the supply chain.

There was bad news in the service sector as well, as the rate of growth in August slowed to its lowest level for two years.

Meanwhile Chancellor George Osborne was hard at work trying to drum up business in China, announcing that China was to invest in the Hinkley Point nuclear power station, with the UK government guaranteeing the £2bn deal. Osborne also encouraged the Chinese to bid for work on the new HS2 contracts and – in a move which raised many eyebrows in the city – suggested that the UK and China could explore ways to link their stock markets.

It was also announced that the Chancellor will deliver this year’s Autumn Statement (combined with the Annual Spending Review) on Wednesday November 25th. No doubt we can expect more moves to boost the UK’s productivity in the speech: the productivity gap between the UK and other G7 nations is now at its largest since 1991, with the Office for National Statistics putting it at 20 percentage points.

There was confusion on interest rates through September: at the beginning of the month the BBC was reporting that rates were still likely to rise by the end of the year, despite the slowdown in China. Two weeks later it was suggesting that the Bank of England might have to cut rates (from their present 0.5%) in a bid to combat low inflation.

Meanwhile Tesco was raising £4.2bn by selling its South Korean Homeplus stores: the money will be used to pay down debt and “revitalise” the UK business. As Morrisons have just given up trying to make their ‘local’ stores work and sold them, you have to wish Tesco (not a byword for success of late) the best of luck…


As we reported in a recent bulletin, the problems of the Greek economy were best summarised in one simple sentence: “You cannot export olives and import BMWs.”

One thing Greece will clearly not be importing in the near future is Volkswagens, as the company was forced to admit that its emissions data had been falsified. Chief Executive Martin Winterkorn duly fell on his proverbial sword as the shares dropped 20%.

There seems little doubt that we’ll be reporting further on this story next month: at the time of writing it appears that VW may not be alone in falsifying data.

Leaving the empty VW showrooms and heading for the polling booth, Alexis Tsipras was hailing a “victory of the people” after winning Greece’s fifth General Election in six years. Syriza won 35% of the vote – down on December of last year and short of an overall majority – but it will form a coalition with the Independent Greeks party.

In more sober news, the European Central Bank (ECB) was busy cutting growth and inflation forecasts for this year and the next two years. The ECB is now forecasting growth in the Eurozone at 1.4% for 2015 (down from 1.5%) and 1.7% for 2016, down from 1.9%. Mario Draghi, President of the ECB, commented that the “recovery will continue, albeit at a slightly weaker pace.”

The Bank expected inflation to be 0.1% for 2015, rising to 1.5% in 2016 and 1.7% in 2017, with lower energy prices still keeping a lid on inflation.

Not surprisingly, given the worldwide malaise, both of Europe’s leading stock markets suffered the inevitable falls in September. The German DAX index was down by 6% as it slipped back below the 10,000 barrier to end the month at 9,660. The French index fell 4% to 4,455. However, there’s always an exception to the rule, and in this bulletin it’s usually Greece. The Athens stock market celebrated the return of Mr. Tsipras with a 5% rise in September, closing at 654.


The month started with good news for the US economy as figures for July confirmed that the trade deficit was the lowest for five months, down to a paltry $41.9bn in July from $45.2bn the previous month. This means that it may take 24 months instead of the usual 22 months for the US to rack up its next trillion dollars of debt.

Less good was the news on jobs, with the US economy adding 173,000 jobs in August, well below the 217,000 expected. This overshadowed the news that unemployment had fallen from 5.3% to 5.1% – the lowest level since April 2008 – and the mood wasn’t helped when Hewlett Packard announced they were embarking on a programme to axe 25-30,000 jobs.

The oil industry was also reporting disappointing news as US oil output suffered its ‘sharpest fall since 1992’ due to falling oil prices. A year ago US crude was around $90 a barrel: it is now down to $45 a barrel.

For the time being the US Federal Reserve has voted to keep interest rates at their current level of 0.25% (where they have been since December 2008) due to worries about the situation in China and the global economic slowdown. However Janet Yellen, Federal Reserve Chair, still believes that the US is on course for a rate rise, ‘later this year.’

On Wall Street the Dow Jones index inevitably went the same way as all the other major stock markets – but only just. It closed September at 16,285, down just 1% in the month.

Far East

Clearly the eyes of the world were on China in September, as the slide in Chinese shares continued along with the remorseless drip of bad industrial news.

The month started with new data confirming that factory activity was contracting at its fastest rate for three years, and August also saw big falls in exports and imports – although the Chinese trade balance rose sharply.

Imports fell by 14% from the previous year (in yuan denominated terms) while exports only declined 6.1%. The steep fall in imports reflected lower commodity prices, and meant that China’s trade surplus was up by 40% on the previous month to $57.8bn (£37.7bn).

This looks likely to continue, with the expectation that September’s figures will follow a similar pattern: certainly the indications are that Chinese factory activity will be down again when the September figures are released.

There was stock market excitement in Japan as Japan Post raised $11.5bn in one of the world’s biggest stock market debuts this year, and the biggest public share sale in Japan for 30 years.

…And there was excitement of a somewhat different sort in Korea, with the North announcing that its nuclear reactor at Yongbyon was in “full production,” a move which will do nothing to lessen tensions with the South.

What of Far Eastern stock markets? China continued its seemingly inexorable fall, with the Shanghai composite falling to 3,053 – a fall of 5% in the month. The market fell by an eye-watering 29% in the third quarter, but is only 6% down on a year to date basis: and it’s worth noting that the Chinese market closed September 2014 at 2,363.

As we remarked above, the biggest faller in September was Japan, with the market down 8% to 17,388. Hong Kong suffered a relatively modest fall of 4% as it closed at 20,828 whilst the South Korean market was one of the few to move in the opposite direction. The index there closed up 1% at 1,963.

Emerging Markets

It’s not just China – growth in India is also slowing down. The economy grew at an annual rate of 7% from April to June, down from 7.5% in the previous quarter and lower than expected. With interest rates in India still high there are hopes that the Reserve Bank will shortly reduce rates in a bid to boost growth.

Meanwhile Brazil had even bigger problems, as its debt was cut to junk bond status by Standard and Poor’s. The government has introduced a $7bn package of spending cuts and is looking to raise an extra $8bn by re-introducing a financial transactions tax that was abolished eight years ago.

Given these problems the Brazilian market did well to only fall 3% in September, closing at 45,059. Russia – the other major emerging market we report on – saw its stock market fare slightly worse with a 5% fall to 1,643. In India the market – perhaps buoyed by the news regarding interest rates – lost only 128 points, closing more or less unchanged at 26,155.

And finally…

Not surprisingly, lighter financial stories were in somewhat short supply in September, but maybe we should celebrate the success of Banksy’s anti-capitalist, subversive theme park, Dismaland.

Over the past five weeks more than 150,000 people have visited what was previously a derelict lido in Weston-Super-Mare. It had been shut since August 2000 and re-opened as Dismaland on August 20th this year.

Describing itself as “entry-level anarchism” the show – which satirises the tourism and theme park industries – was selling 4,000 tickets a day online and ultimately provided a £20m boost to the local economy, proving that you can be very successful by swimming against the tide. No doubt Messrs Tsipras and Corbyn will have taken note…

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20 Oct 2015 Uncategorized

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