Stock exchanges spanning the western hemisphere have continued to fall as the impact of the yuan devaluation reverberates through global equity markets.
The FTSE 100 is on course for its 10th consecutive day of losses, having dropped 2.8% this morning to 6,012 points, while pan-European indexes joined the Shanghai Composite in the ongoing downward trend.
However, while some investors seek safety in property and alternative assets, Calder, research director at City AM, says it should not be a case of running for the hills, but one that calls for a more discerning approach.
“Investors are asking if this the start of the next recession and massive bear market, or a correction in a fairly mature bull market,” he said. “We are going for the latter.
“At the beginning of the year we liked equities in general, but now we are specifically targeting certain areas.”
Having reduced his Asia and emerging markets weightings, Calder is training his sights on the two weaker currency markets – Europe and Japan.
While his European weighting includes the JPM Europe Ex UK Dynamic and SLI European Equity Income funds – both hedged – it is Japan where Calder sees the best potential, which he is accessing via hedged positions in JO Hambro Japan Dividend Growth and Neptune Japan Opportunities.
“Because the bull market is ageing the rallies are going to be less buoyant than previous ones,” he expanded. “We have a fairly good idea as to where the tops of some markets are, and any rallies will be based on relative differences in performance around the globe.
“Japan is the only country in the world that is still having earnings upgrades coming through, valuations are looking very attractive, and the Japanese central bank is very accommodative. So there could definitely be a relief rally.”
On the fixed income side, Europe is the favoured play of Mark Dowding, partner and co-head of investment grade at BlueBay Asset Management.
He said: “We have one last week of August and summer markets left to go, and so find ourselves asking what the ‘back to school’ trade will be as the majority of risk takers return from their summer break.
“In this regard, we have most confidence in looking at eurozone fixed income markets where the backdrop seems to suggest a continuation of ECB dovishness, low inflation and low Bund yields.
Dowding continued: “We can see this feeding into the ‘dark star’ theory, whereby investors in the region are forced to reach for yield creating a situation where sinking Bund yields exert a gravitation pull tighter on other assets surrounding them in the investment universe.
“Consequently we see value in corporate bond and sovereign spreads in euros and if risk appetite can stabilise we could see a swing from fear back to greed in the month ahead.”
