Another year, another unpredictable summer, and with the ongoing Greece situation and Chinese A-share downturn serving as this year’s antagonists, it appears that 2015 will be no better than the years that preceded it.
While equity markets have averaged an annual return of 10% since 1973, between May and September this figure is almost zero.
However, there are exceptions to the rule, and as the traditionally fragile summer market chugs through the ‘silly season’, Greetham, RLAM’s head of multi-asset, and Ian Kernohan, senior economist at the firm, believe that there could be some opportunities out there.
Summer of sixes and nines
“Summer trading volumes are thin and the market is often caught in a volatile sideways trading range,” they said.
“Among the many rules of thumb in the investment world the one which stands up best to scrutiny is ‘Sell in May and go away, don’t come back till St. Leger Day’ (in September).
“But in six summers out of 10 the market goes up, and there have been some spectacularly good instances, such as 2003 and 2009. With depressed investor sentiment and a positive economic backdrop, we are buying the dips.”
One of the main catalysts for these ‘dips’, say RLAM, has been the threat of a Greek exit from the euro, which, while it should provide further short-term uncertainty, is unlikely to pose any long-term problems.
“Greece’s standoff with its creditors has reached fever pitch, but there seems to be little contagion to other peripheral bond markets,” they expanded.
“Greek 10-year yields are near 20% while the average spread of France, Spain and Italy over Germany is still only about 1.2%. Thinking globally, it is hard to see problems in a country making up one percent of European Union GDP having a lasting impact.”
“One of the main catalysts for these ‘dips’, say RLAM, has been the threat of a Greek exit from the euro, which, while it should provide further short-term uncertainty, is unlikely to pose any long-term problems.
“Volatility is usually higher in thin summer trading and investor sentiment is already depressed. Longer term, these ‘panic’ events often turn out to be excellent buying opportunities for equities, even if it feels very tough to do so at the time.”
It is a view shared by James Hambro & Partners, who are sanguine on Europe’s ability to continue its recovery in spite of the Greece issue and positive on global equities in general, as illustrated by the firm’s portfolio overweight to international equities.
