The list of reasons to worry in the market is growing longer by the day, and investors keep taking money out of risky assets – among them, European ones.
The phenomenon has been dubbed an “exodus from Europe” by analysts at Bank of America Merrill Lynch, who say there is “no surprise that the outflow from European high grade and high yield funds has been much more sizable than outflows from emerging markets debt funds.”
Last month has become known as Red October, not so much as a hint to the film starring Sean Connery as the commander of the defecting Soviet submarine by that name, but sadly, as an accurate description of the dominant colour on trading screens around the world.
The Halloween effect is a well-known seasonal quirk that pushes stock prices up between October 31 and May 1. After a horrible October for stocks, investors are anxious to know whether the market rout is over or it has more to run.
There is one indicator that could provide some clues. We’ve spoken about it before on this website. Bank of America Merrill Lynch’s Bull and Bear indicator triggered a “Sell” signal back in January of this year, and it is now close to a “Buy” one – although not yet.
Investors who missed using the mid-October low in the market as an entry point have been “unable to capture the turnaround” and will struggle to do so, Chris Tinker, co-founder of Libra Investment Services, noted in research last week.
Company executives’ confidence in the stability of the global economy has improved, and appetite for mergers and acquisitions has increased, a survey by consultancy EY shows.
It also shows a jump in their confidence in the outlook for company earnings, just as earnings season kicks off in the U.S.
Emerging Europe equities could be a good investment for the last quarter of 2014 for those who are ready to brave the huge risks involved. At least that’s the opinion of analysts and asset managers who are looking at the area.
The S&P 500, which has posted a total return of 9 percent since the end of August, “will struggle to make further headway,” John Higgins, chief markets economist at Capital Economics, said.
He forecast the index – currently at around 1,765 – will inch up to just 1,800 by the end of this year and will end 2015 at 1,850, less than 5 percent above its present level.