Buxton said there are ‘many things to worry about’ in geopolitical and monetary policy terms and it is inevitable investors will feel in an ‘autumnal mood.’
“It has been a frustrating year, with the UK market range-bound and few opportunities for delivering significant portfolio returns,” he said. “Surveys of investor sentiment showing large numbers of ‘neutral’ readings speak volumes about the ennui and indifference in equity markets,” he added.
Among the main worries is Federal Reserve policy. “If the Fed sticks to its tapering timetable then QE in the US will come to an end, thereby removing the primary liquidity driver of equities, according to the bears,” Buxton said. “For some, rising bond yields will undermine the key valuation support for equities – and if yields rise sufficiently, may prompt pension fund switching from equities into bonds,” he added.
The other big monetary issue on Buxton’s mind is the possibility of QE in the Eurozone.
“Expectations ride high for a European QE, even before their banks’ Asset Quality Review and the start of the ECB’s next round of cheap bank funding, designed to stimulate credit growth,” he said. “But if European equities expect to be saved by the ECB’s kick-starting of growth, then at the very least one has to note that the scope for disappointment against expectations from the ECB is hardly without precedent,” he added.
There is also a long list of global trouble spots which Buxton sees hitting investor sentiment. These include the situations in Iraq with the Islamic State, instability in Libya hitting oil production there, the Ebola outbreak in Africa and Russia’s increasing alienation from the West and closeness with China.
One bright spot Buxton sees is the likelihood of a steady supply of attractive IPO’s during the coming three months. “High quality companies with strong balance sheets, good management and attractive valuations will abound, I have no doubt,” he said.
