If one believes in astrology, October is the month of Libra, symbolised by the balance scale. Indeed, the performance of the Fund was balanced, both in terms of the evolution of the performance and its attribution. The Fund was up 35 bps in October and 8.83% year-to-date. Positive performance came from the safer assets such as bonds (1%) and credit (17bps) while riskier assets like equities and commodities were down (-22bps and -51bps respectively). Such is the beauty of diversification.
October 2014: distinct kink mid-month
Tracing the paths of major indices across the asset classes, one would observe a distinct kink mid-month. At the beginning of October, a series of poor economic numbers coming from Germany – to think Europe’s largest economy was going into recession – sparked fears of contagion in the global economy. The then-impending end to the QE programme and news of Ebola reaching New York did not bode well for the riskier assets. Alas, the big hoo-ha turned out to be for nothing. While there was no particular trigger, price action suggested a capitulation: equity markets were oversold and quickly bottomed out as the sellers were cleared out and speculators covered short positions. Subsequently, the major central banks also soothed the market anxiety. The Federal Reserve retained their dovish tone in the released statement despite the end of QE3. The Bank of Japan added further stimulus which spurred the Japanese investors. Risk-off sentiment was prevalent in the markets but the appetite was recovering. Global equities made up for the losses at the beginning of the month, largely finishing flat.
MARKET REVIEW
The US dollar neared its five-year peak. A surge in M&A activity in the US since the beginning of the year, especially cross border deals, indicated increased demand in the dollar. Similarly, the prospects of a rates hike in mid-2015 and a marginally higher yield for the 10-year Treasury note relative to the other major economies, also suggested a higher dollar from a fundamental point of view.
Repercussions to a stronger dollar included commodity weakness and a drop in demand for US exports. The Republicans, traditionally deemed to be more business-friendly, reclaimed the US senate majority in the recent mid-term election. In the absence of political pressure for the Federal Reserve to raise rates, coupled with the persistent deflationary pressure in Europe, we see a very supportive environment for the immediate future.