to help you make informed decisions about your wealth
Archived article
Boat on lake

Shaken, not stirred

14 October 2014

Britain and America’s recovery continues but geopolitical risks and a slowdown for parts of the world economy added to growing uncertainty in the third quarter.

The world has looked more unsettled as 2014 has progressed, and, with geopolitical tensions mounting over the summer, uncertainty began to weigh on global markets in the third quarter. Russia’s action in Ukraine and the escalation of Western sanctions has created a state of international unease not seen since the end of the Cold War. Conflict across the Middle East started to rattle previously sanguine global investors. Other political risks ranging from elections in key emerging market nations to, closer home, the Scotland referendum, strained the steady mood of investors. Consequently, volatility levels, which had been at historical lows at the start of the year, picked up towards the end of the period.

Global markets started the year in confident spirits with the support of accommodative monetary policy and the momentum of the equity rally of 2013. The policy directions of the world’s leading economies have started to diverge over the ensuing months, with the US Federal Reserve and the Bank of England looking to normalise monetary policy, while the European Central Bank and the Bank of Japan have moved in the opposite direction. The US economy, although not without challenges, has continued to show signs of strength; while the UK has also enjoyed strong growth.

The gradual strengthening for America’s economy and the Fed’s response to these conditions comes with complications. If the Fed raises interest rates too soon – or by too much – then there is a risk of unsettling global markets (when the raison d’être of its loose monetary policy has been to provide support for assets and stimulate the economy until a recovery gains enough momentum to return to normal). The Fed continued to reduce its monthly asset purchases, with the end of quantitative easing (QE) expected to be followed by an increase in interest rates in 2015.

Global equities have not sustained the pace of growth of last year, and the third quarter brought a further slowdown of the momentum. However, the growth in the developed markets remains steady, if unspectacular. The MSCI All Country World index lost 2.6% over the third quarter, while the MSCI Emerging Markets index dropped 4.3%. Expectations of the end of QE also dampened the attraction of emerging markets. The US recovery and the prospect of an interest rate rise strengthened the dollar, eroding returns from global equities. The US equity market remained positive amid these conditions, with the S&P 500 index up 0.6% over the three-month period. However, the US index continued to set records as it went through the 2,000 level in August. The strength of the wider US economy encouraged more merger and acquisition activity and increased confidence among US investors. However, slow Chinese growth and falling commodity prices hit the energy sector; the prospect of interest rate rises weighed on utilities; and the strong dollar depressed overseas earnings for US industrials.

In Asia, financial markets in Tokyo continued to display concerns over the effectiveness of the programme to stimulate the economy. Japanese data started to decline at the start of the quarter. However, the Japanese equity market gained 6.7% over the third quarter, with the weakening of the yen also boosting Japan’s exporters. Europe’s stuttering recovery continued to lose momentum with the performance from equities reflecting this loss of trajectory. The STOXX Europe 600 index remained flat over the quarter. The conflict in Ukraine and the sanctions on Russia raised concerns for the eurozone’s largest economy, Germany, as well as the bloc’s wider economy.

The highly-international UK equity market felt the ramifications of global developments, including China’s slowdown.  Mining and oil & gas sector companies pushed the FTSE 100 down 1.8% over the third quarter. UK-focused consumer services companies had mixed performances, while the UK supermarket sector suffered amid a price war. The Scottish referendum caused short-term volatility; although the debate over new constitutional arrangements for the UK and the nation’s future in Europe will keep political uncertainty at the fore. Meanwhile, the Bank of England continued to hint that a rise in interest rates could arrive early in 2015.

The information contained does not constitute advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations.

Some of the products and investment structures documented within this article will not be available to our clients in Asia. For information on the funds that are available please get in touch.


We value your opinion

We are always looking for ways to improve our service, so if there is something you think we could do better, or that you think we are doing really well, we would love to hear from you.

The only thing we ask is that you do not include any personal information, like account numbers, in your email. If your matter is urgent, needing our personal attention, please contact your local office.

You may be contacted to follow up on your comments.


If you wish to complain about any aspect of our service, we will do what we can not only to meet, but exceed your expectations of a swift and thorough resolution. More details of our complaints procedure can be found here.