Richard Cayne at Meyer International in Bangkok Thailand explains -The wild ride; where the first half of the week with plunges in equity markets worldwide, the second part of the week with a sharp recovery, both in equities credit and high yield. There were almost unprecedented swings on a daily basis. Sometimes on an intra-day basis as well in the trading of US 10-year Treasury bonds. It was a week that made people ask questions about investment policy, the world economy, and the enormous spike in volatility. Before addressing those, we should remind ourselves that for a long time volatility has been extremely low, historically low actually explains Richard Cayne. Until recently, the volatility of commodities, of bonds, of currencies and of equities has been, by historical standards, exceptionally low. Uncertainty presents itself in many ways. It’s rather like holding a soccer ball under the water – when you let the ball go, it bounces up further. That’s what we’ve seen; that’s what we may continue to see.
Interestingly, although much of the commentary has been on Europe, the sector volatility in the equities space and the bond market volatility has been far greater in the US explains Richard Cayne, probably because it was a given part of everybody’s investment thesis that US growth is recovering strongly and it wouldn’t be long before the Fed would be starting to raise rates.
The turning point came this week when a number of Fed governors said that they would not rule out further stimulus in the future, or that they are arguing the case for an interest-rate rise to be pushed further out into the future. Richard Cayne as he believed last week that the markets rallied around that and they sure did. That’s a straightforward signal that global markets still need either price stimulus or quantity stimulus, or that they’re going to reset their valuation base very rapidly. Richard Cayne thinks that the valuation base has already been reset, because even if rates are going to rise, they’re going to rise quite gently. That was true before the last two weeks, and it’s truer now. The higher-yielding end, and the slightly riskier end, of the fixed-income complex really has got some considerable value in it, and it’s worth looking closely at exposures there.
In contrast, long-duration government bonds have rallied very strongly because they’ve been the only diversifier around, and are almost certainly overvalued. For equities, the case still remains that they are the asset with the real rate of return whereby corporate earnings, as we’re seeing in the current earnings season, and cash flows are rising, and the ability to reward shareholders to increase dividends and corporate activity still remains very much in place explains Richard Cayne. At the center of this somewhat disastrous last couple of weeks has been economics. This week, we will get a number of economic releases which will be closely scrutinized, particularly on Thursday, when Japan, China, France, Germany, the Eurozone, and the US release their purchasing managers’ index figures for October explains Richard Cayne Meyer. The market will examine those numbers very closely. It will also examine China’s figures on Tuesday for investment retail sales and third-quarter GDP. All the evidence suggests that the government in China is working overtime to ease policy on housing and the availability of credit at this stage, partly to meet the 7.5% GDP target the central government has set, and partly because they are probably concerned that things are slowly down too fast. Over the next few months, we expect a cyclical, but not a secular, recovery in the low levels of Chinese output led by upgraded activity in the housing market. There will also be a series of corporate earnings this week: from the pharmaceuticals sector, Glaxo, in Europe; from the banking sector, Credit Suisse, in Europe; and consumer plays such as Daimler and Amazon and, finally, Caterpillar. The latter will paint a picture of very considerable traction in the demand for global construction equipment. The reason for focusing on that is that it leads one back to the epicenter of the change in views about the economic outlook, which has been filled with disappointing numbers from Germany. Richard Cayne believes that the European economic outlook is very flat, but that there will be some cyclical improvement in numbers over the next six months. Fiscal easing and a little bit of policy change will help things along. It is Richard Cayne’s believe that the overselling of cyclical stocks in the stock market has provided a deep valuation opportunity.
Richard Cayne originally from Montreal, Quebec Canada currently resides in Bangkok Thailand with his wife Akiko Cayne and their two young children and runs the Meyer Group of Companies www.meyerjapan.com. Prior to which he was residing in Tokyo Japan for over 15 years and is currently CEO of Asia Wealth Group Holdings Ltd a London, UK Stock Exchange listed Financial Holdings Company
Richard Cayne has been involved in wealth management in Asia for over 19 years and has assisted many High Net worth Japanese families create innovative international tax and wealth management planning solutions. The public company of which he is CEO can be seen at www.asiawealthgroup.com or stock exchange link https://www.isdx.com/Asia Wealth Group