A reality check for investment markets 
December 7, 2018

Graham Bishop, Investment Director at Heartwood Investment Management, the asset management arm of Handelsbanken in the UK, issues a reality check.

"At a time when Brexit-focused headlines dominate the airwaves, investors could be forgiven for thinking that this week's market turmoil stemmed from purely British issues. However, a glance at other world markets tells a different story.

"Over the past few days, a broad-based liquidation has taken place across developed markets. While there is no obvious single trigger for this downward rush, we believe it may be symptomatic of a general reality check following a precious rush of optimism.

"Earlier this week, markets reacted hopefully to suggestions of apparent progress in US-China trade negotiations. This came hot on the heels of seemingly more accommodative language from the US Federal Reserve (Fed Chair Jerome Powell had implied a less dogmatic approach to interest rate rises).

"In recent days, though, other senior Fed members have undone some of Powell's accommodative language, reiterating the Fed's ongoing data-focussed trajectory, while the inflammatory arrest of the CFO of Chinese tech firm Huawei (in Canada, on US orders) has dampened hopes of better US-China relations.

"At this late stage in the cycle, we continue to watch closely for any changes in underlying economic fundamentals. On this occasion, however, we do not believe that we are witnessing a significant shift in fundamentals - more a cold shower on what had appeared to be good news earlier in the month."





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Graham Bishop, Investment Director at Heartwood Investment Management, the asset management arm of Handelsbanken in the UK, issues a reality check.

"At a time when Brexit-focused headlines dominate the airwaves, investors could be forgiven for thinking that this week's market turmoil stemmed from purely British issues. However, a glance at other world markets tells a different story.

"Over the past few days, a broad-based liquidation has taken place across developed markets. While there is no obvious single trigger for this downward rush, we believe it may be symptomatic of a general reality check following a precious rush of optimism.

"Earlier this week, markets reacted hopefully to suggestions of apparent progress in US-China trade negotiations. This came hot on the heels of seemingly more accommodative language from the US Federal Reserve (Fed Chair Jerome Powell had implied a less dogmatic approach to interest rate rises).

"In recent days, though, other senior Fed members have undone some of Powell's accommodative language, reiterating the Fed's ongoing data-focussed trajectory, while the inflammatory arrest of the CFO of Chinese tech firm Huawei (in Canada, on US orders) has dampened hopes of better US-China relations.

"At this late stage in the cycle, we continue to watch closely for any changes in underlying economic fundamentals. On this occasion, however, we do not believe that we are witnessing a significant shift in fundamentals - more a cold shower on what had appeared to be good news earlier in the month."



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