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September Market Commentary

By September 3, 2015February 12th, 2019No Comments


“Markets can fall as well as rise…”

Never was that statement more true than in August, when virtually all the major world markets headed down, led by the plunging stock market in China. It became virtually impossible to watch a news bulletin without seeing a shell-shocked fund manager or a weeping private investor.

It is, however, important to keep China’s dramatic rises and falls in some sort of perspective, and we’ve tried to do that in the section on the Far East. If August emphasised anything though, it is that saving and investing is a long term commitment – not a short term gamble.

Elsewhere, there was the usual mixture of good and bad news. Let’s start with the glass half empty, and the prediction from the National Institute of Economic and Social Research that world growth in 2015 will slow to the lowest level since the financial crisis. It will apparently be down to 3% instead of 3.2%.

The Greek stock market finally re-opened after being closed for five weeks – and immediately plunged. There was renewed fighting in the Ukraine and ‘tense’ would be far too mild a word to describe relations between North and South Korea: at one point Kim Jong-un put his troops on a full war footing.

…But we can just as easily see the glass the other way. The CBI predicted ‘decent quarterly growth’ in the UK as it raised its forecasts for this year and next. The Bundesbank described economic growth in Germany as ‘solid’ – and figures for the second quarter in the United States were revised sharply upwards, giving a boost to world stock markets when they most needed it.


“Sell in May and go away,” as the old time investors used to say – although that mantra had more to do with spending the summer at Lords, Ascot and Henley than it did with investment. Nevertheless, it would have been sound advice last month, as the UK market followed the rest of the world, falling by 7% in the month to close at 6,248 having briefly dropped below the 6,000 barrier when the chaos in China was at its worst.

So much for the markets: the second part of the old mantra is “Don’t come back until St. Leger day,” which this year is on September 12th. Maybe we should therefore pay more heed to the CBI’s forecast, with growth of 2.6% now expected for this year and 2.8% for next year – up from the previous forecasts of 2.4% and 2.5% respectively.

In other good news the Council of Mortgage Lenders reported that borrowing was at its highest level since 2008, whilst a report from accountants BDO said the Scottish economy was “thriving” with pretty much every indicator pointing in the right direction. Score one to Nicola Sturgeon and her assertion that the UK already has a ‘Northern Powerhouse.’

There would, however, have been bad news for an independent Scotland, with the Scottish Government’s quarterly national accounts showing North Sea oil revenues down sharply. The figures revealed revenue of £742m for the final three months of 2014 – but only £168m for the first quarter of 2015.

Other bad news saw UK unemployment up by 25,000 for the April to June period – although there are 354,000 more people in work than a year ago. UK manufacturing growth picked up slightly in July after a record 26 month low in June, although according to the purchasing managers’ survey it is still “near stagnant.”

It was also confirmed that interest rates are still likely to rise, despite the slowdown in China. Outgoing Monetary Policy Committee member Professor David Miles told the BBC that “rates will rise soon” and later in the month Bank of England Governor Mark Carney confirmed this.

July was at least a good month for Chancellor George Osborne: the government made a surplus in the month thanks to higher tax receipts. Whatever is happening in the rest of the world, we appear to be paying our tax on time…


“Never say never” as the saying goes – especially when you’re writing about the Greek financial crisis. As reported above, the Greek stock market re-opened and promptly fell sharply, ending the month down 22% at 624. This was despite a third bailout finally being agreed, with Greece set to receive a further €86bn over the next three years.

Prime Minister Alexis Tsipras celebrated the news by resigning, with Greece now set for its fourth general election in less than 3½ years on Sunday, September 20th. Tsipras has told the Greek people that ‘they will judge him.’ With anti-austerity (and anti-bailout) feeling still running high, the result could well be a very messy coalition.

Meanwhile the Bundesbank’s prediction of steady growth was certainly being born out in Germany, with the June figures confirming a record trade surplus of €24bn – up from €16.2bn a year previously and well ahead of market expectations. GDP growth was 0.4% for the second quarter of the year, with unemployment holding steady at 4.7% and inflation doing likewise at 0.2%.

…But not even the German stock market could escape the wind blowing from China. The index was down 9% to finish August at 10,259: the other major European market, France, fell almost as much, ending the month down 8% at 4,653.


Whatever was happening in the rest of the world there was at least good news for Facebook, as the company revealed that it had reached the landmark of 1bn users in a single day – roughly equal to 1 in 7 of the world’s population.

There was more general good news as the economy added a further 215,000 jobs in July, but the real boost came at the end of the month, after revised figures showed that the US economy grew by far more than had been thought between April and June.

The economy grew at an annualised rate of 3.7% – up from the first estimate of 2.3% – with more corporate investment adding to stronger consumer and government spending. This gave an immediate boost to both oil and share prices.

All this made the case for a September rise in interest rates “less compelling” according to Federal Reserve official William Dudley – but it still wasn’t enough to prevent the Dow Jones index falling sharply in the month, down 7% to 16,528 at the end of August.

Far East

As we mentioned in the introduction, it’s important to try and keep this month’s chaos on the Chinese stock market in perspective: let’s try and do that.

At the end of August 2013 the Shanghai Composite index stood at 2,098. Ten months later, at the end of June 2014, it had fallen slightly to 2,048. It then began a dramatic rise, closing August 2014 at 2,217 and ending the year at 3,235. The index raced ahead through the early months of 2015, and when we wrote our May report it had just closed the month at 4,613. Since then it has tumbled dramatically, falling to 3,664 at the end of July and a further 12% in August to end the month at 3,207 (having been below 3,000 at one point during the month).

But this is where we need to take a long view: on a 12 month basis the Chinese market is up 44%: over two years it is up by 53%. By any standards those are outstanding returns – and as we said in the introduction, saving and investing is emphatically a long term commitment.

Clearly though, the Chinese economy is slowing down: exports were down by 8% in July and all the news regarding factory output is negative. The Government sought to boost exports by devaluing the yuan against the dollar – describing it as a ‘one-off depreciation.’ They promptly then did exactly the same on the following two days, triggering fears of a currency war as India, for example, immediately sought to weaken the rupee.

As several commentators pointed out, ‘what’s good for growth in China is unfortunately bad for everyone else.’

Inevitably the bad news and uncertainty from China affected other stock markets in the region. Hong Kong followed the lead of the Shanghai Composite, dropping by 12% in August to 21,671. Japan was down by 8% to 18,890 but South Korea – despite the belligerence of its neighbour to the North – was only down by 4%, the market ending August at 1,941.

Emerging Markets

China had a rival in the ‘bad news stakes’ with August proving to be a dreadful month for the Brazilian economy. Figures for June confirmed a rise in unemployment to 7.5% – higher than the forecast of 7.05% and the worst for five years. Inflation (pushed up by rising electricity prices) was at a 12 year high of 9.56% compared to the official target of 4.5% and the IMF confirmed that it expected the economy to shrink by 1.5% this year.

In India there were indications that official figures would show growth slowing in the second quarter of the year and this – combined with China – was enough to send the stock market down 7% in August to close at 26,283.

No such gloom in Russia though as it registered the only rise in the month. Despite the economy contracting by 4.6% from April to June and an eye-watering inflation rate of 15.6% the stock market rose by 4% in August. It closed the month at 1,733 and is now up by 24% in 2015. Unsurprisingly the stock market was down 8% to 46,626.

And finally…

I’m not sure whether this story is humorous or tragic, but August saw Russian Premier Vladimir Putin decide to ban imports of several Western foods, presumably in retaliation for sanctions. The authorities began the campaign by bulldozing a ‘mountain’ of European cheese, which had officially been branded a security threat.

Boxes of subversive bacon were also tossed into the incinerators in a move condemned by many both inside and outside Russia – a country where poverty rates are soaring and memories remain of the Soviet-era famines.

The ban is currently in place until August of next year and covers a wide range of food including pork, beef, fish and seafood, milk and dairy products, fruits, vegetables and nuts.

From Russia to China, ‘nuts’ might just be the right word to sum up August…