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Market turmoil: Industry reaction

Henderson Global Investors chief investment officer David Jacob says that the current market turmoil is down to confidence rather than the concerns over creditworthiness seen in 2008.

Jacob says with governments becoming an ever-increasing participant in capital markets since 2008, all their efforts have left them “intertwined” with markets.

He says: “The current turmoil is being brought about because markets no longer feel those government participants have the tools or balance sheets to further stimulate economies and impact markets sufficiently to prevent a slow down.”  

However, Jacob says that despite this corporates remain in good health and developed market may help to bolster growth in the global economy.

He says: “I think it is fair to say that most of the investment teams on the equity side feel that at these levels there are some attractive buying opportunities and that we may be nearing a low for the near term. On the debt side, credits remain strong, and levels are again beginning to look appealing given the health of balance sheets. On the interest rate side, of course the sovereign credit risk is clearly increasing, and it is difficult to feel that government bonds offer good value at these levels.

“Finally, liquidity remains very thin, but chiefly because of the summer period and absence of many market participants. Counterparties are reluctant to take on risks at present mainly due to uncertainty, but we are not seeing the market dysfunction that we observed during the Lehman crisis.”

Royal London Asset Management chief economist Ian Kernohan says that recent events are bound to impact a fragile economic situation in the UK and will hit global growth in the second half of the year.

He says: “In the short term, the situation is bound to remain volatile, although looking further out, our experience in markets suggest that it is the relative valuations of assets which count in the long run, and we are long term investors. We note that, in contrast to 2008, money markets remain under no great stress, while strong corporate balance sheets underpin dividends. We have a preference for equities over government debt in our asset allocation strategy.”

Fidelity International global chief investment officer Andrew Wells says: “While there will be continued volatility, there is a growing sense that the ECB have introduced some core stability to European bond markets by purchasing the government bonds of Spain and Italy. Jean-Claude Trichet, President of the ECB, has been talking about being in the market for these bonds all week which has helped to bring Spanish 10-year bond yields under the 5 per cent level. The other supportive factor is that Standard & Poor’s has reaffirmed the AAA sovereign credit ratings of France and the UK in the wake of the US downgrade.”


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