Clive Hale's view on markets

Views on market falls: Clive Hale, director, FundCalibre

August 2015

A number of markets have exceeded the 10% drop level, and are well on their way to the 20% mark, which is supposed to herald bear market conditions. Certainly, the economic news in general has not been supportive. With major concerns over the Chinese economy, competitive global currency devaluations, questions over the timing of interest rate rises and the efficacy of quantitative easing (QE) it is no wonder markets are weak.

I think the Chinese devaluation has triggered the rush for the exits, but we need to reflect on just what that devaluation means, and whether the markets' response is rational. That will, I suspect, start to happen shortly as the markets are getting very oversold and we will start to hear cries of “value”. However, if we get a bounce, my feeling is that this will be an opportunity to reduce any “speculative” positions rather than increase them.

The problem is, where do we put the money if we do reduce our more speculative positions? Traditionally, it would be bonds and, with deflation now being exported in a more concerted fashion by China, US Treasuries have once again become the 'safe haven' of choice. They are close to yielding sub-2% again, but still expensive for my tastes.

So cash - which is yielding next to nothing - is an option for the very short term, or absolute return funds. The former would mean crystalising losses, which are so far only on paper, but might be the only choice for investors who need their money soon. The latter would be more appealing for most other investors I assume.