January 2016

Manager Commentary

It has been an extremely difficult start to the New Year as investors struggle to come to terms with the wider ramifications of the economic slowdown in China and lower energy prices. Volatility surged amidst the steep sell-off in equities and the “safe haven” inspired rally in government bonds. Central banks around the world remain on standby to counter the ongoing downturn in emerging markets and near term fallout from weaker oil prices. This commitment was highlighted at the end of January when the Bank of Japan unexpectedly cut interest rates to minus 0.1 percent, which helped fuel a short covering rally in risk assets. Despite the latest monetary policy initiative, the Nikkei 225 closed down -7.96% and China’s Shanghai Composite declined -22.65%. The MSCI World fell -6.05% and the S&P 500 lost -5.07%. The FTSE 100 staged a partial recovery during the last few trading sessions of the month to close at 6,083 and lost -2.54%. Government bond prices in the UK, US and Germany rose, but this is likely to be a short term phenomenon given that the Federal Reserve has already embarked on the road to higher interest rates. Commodity markets remain unsettled by the slowdown in China and the GSCI fell -4.87% with most of the losses attributable to the energy sector. Oil reached a 12 year low of $26.50 per barrel and closed down -9.23%. This precipitous decline in prices is a problem for oil exporting nations, but it’s potentially very good news for consumer spending in oil importing countries such as China and Japan. The currency markets were relatively subdued when compared to equities with the exception of sterling, which lost -3.35% versus the US dollar on the growing fears of a “Brexit”.