The three things spooking markets: rational or not?

The three things spooking markets: rational or not?

11-01-2016 | 月次アウトルック

Equities are being rattled by three fears that are leading to an overreaction in markets, says Robeco’s Lukas Daalder.

  • Lukas Daalder
    Lukas
    Daalder
    Chief Investment Officer

Speed read

  • Chinese stock market woes should not affect Western equities
  • Lower oil price has many positives such as more spending power
  • High yield market does not really act as an economic barometer
  • Robeco Investment Solutions remains overweight equities

He says the meltdown in Chinese stocks has been combined with a perceived negative consequence of the continued fall in the oil price and a flawed belief that problems in the High Yield market are a barometer for global recession.

However, all three things have a limited bearing on true economic prospects and are simply causing overreactions, says Daalder, Chief Investment Officer of Robeco Investment Solutions. Subsequently, his team remains overweight on equities, believing they still have good prospects for 2016.

“The most obvious concern that has triggered the current risk-off environment is developments in China,” says Daalder. “We can understand that a 7% loss in China on the first trading day is a bit of a sentiment spoiler, and so the fact that stocks closed lower everywhere else was not a big surprise. We have a lot more trouble however in explaining why stocks continued to sell off on the China argument for the week as a whole.”

最新の「インサイト」を読む
最新の「インサイト」を読む
配信登録

The Chinese stock market has long been considered to be a deflating bubble. Source: Bloomberg/Robeco.

“The Chinese stock market is a standalone creature that has a life of its own, rising by 150% in the 2014-2015 period, despite weakening earnings fundamentals. It represents a classic bubble, which is now in the process of being deflated. Unlike the US or European markets – which are much more intertwined – there are no direct spillover effects to the rest of the world. Chinese stocks are mostly owned by a fairly limited group of domestic investors, so the pain of the losses is not felt outside of China.”

“As for the devaluation of the yuan, the 1.5% move seen since the start of this year is neither shocking, nor will it have much of an impact. Even if we extend the period to August 2015, the total devaluation has reached 6%: the euro declined by that much in less than a month in October-November.”

Chinese circuit breakers which closed markets were widely mocked on social media. Source: weibo.com.

A lower oil price has benefits

Daalder says the second irrational thing spooking markets is the lower oil price, and the belief that this indicates faltering demand, and therefore economic weakening. Sentiment has also been harmed by a diplomatic spat between two of the world’s largest oil producers, Saudi Arabia and Iran.

“Even if we could state that demand for oil is falling, it still does not mean that the world economy is weakening: extremely warm winter weather in the Western hemisphere (El Niño) or the structural shift to solar energy could also play a role,” says Daalder.

‘It is a pretty one-sided way of presenting the oil story’

“The pain runs broader though, with many of the major oil-producing countries and companies currently feeling the pinch. This can lead those countries or companies to liquidate part of their investment portfolio, adding to the selling pressures in the market.”

“At the same time, it is a pretty one-sided way of presenting the oil story. What is absent is the positive side of the demise of oil prices: a big cost reduction for both consumers and producers, leading to a rise in disposable income and improved margins respectively. So far, the financial markets seem to strictly look at the negative impact, while ignoring the underlying positive.”

High Yield’s ‘early warning’ signal

A third factor weighing on the markets has been a weakening High Yield market and the notion that this is some sort of industrial barometer, Daalder says. US High Yield spreads – the difference between their yields and those of super-safe government bonds – have widened since June 2014, ending 2015 with a negative 4.5% return, the first loss since 2007.

“A negative consequence connected to this is an assumption that the High Yield market gives an early warning signal for trouble ahead,” says Daalder. “The rationale is that we have never witnessed a negative year outside a recession year, implying that we are heading for a recession.”

“In fact, 1994 and 2002 were both negative years outside a recession year, and it is further questionable whether this notion would also hold in the current low yield environment. Yields have dropped across the whole fixed income spectrum, which means that the underlying buffer has been lowered. Statistically this should lead to more negative return years, no matter what the economy does.”

Portfolio considerations

So, has the market overreacted? “Unfortunately, it doesn’t take much to push stocks lower in the current environment of weakened sentiment , but the fate of developed stock markets is not determined in China, but in the US,” says Daalder.

“With the US consumer in good shape, we think it is highly unlikely that we are entering a recession in 2016. Because of this assessment we continue to hold on to our risk-on portfolio construction.”

重要事項

当資料は情報提供を目的として、Robeco Institutional Asset Management B.V.が作成した英文資料、もしくはその英文資料をロベコ・ジャパン株式会社が翻訳したものです。資料中の個別の金融商品の売買の勧誘や推奨等を目的とするものではありません。記載された情報は十分信頼できるものであると考えておりますが、その正確性、完全性を保証するものではありません。意見や見通しはあくまで作成日における弊社の判断に基づくものであり、今後予告なしに変更されることがあります。運用状況、市場動向、意見等は、過去の一時点あるいは過去の一定期間についてのものであり、過去の実績は将来の運用成果を保証または示唆するものではありません。また、記載された投資方針・戦略等は全ての投資家の皆様に適合するとは限りません。当資料は法律、税務、会計面での助言の提供を意図するものではありません。

ご契約に際しては、必要に応じ専門家にご相談の上、最終的なご判断はお客様ご自身でなさるようお願い致します。

運用を行う資産の評価額は、組入有価証券等の価格、金融市場の相場や金利等の変動、及び組入有価証券の発行体の財務状況による信用力等の影響を受けて変動します。また、外貨建資産に投資する場合は為替変動の影響も受けます。運用によって生じた損益は、全て投資家の皆様に帰属します。したがって投資元本や一定の運用成果が保証されているものではなく、投資元本を上回る損失を被ることがあります。弊社が行う金融商品取引業に係る手数料または報酬は、締結される契約の種類や契約資産額により異なるため、当資料において記載せず別途ご提示させて頂く場合があります。具体的な手数料または報酬の金額・計算方法につきましては弊社担当者へお問合せください。

当資料及び記載されている情報、商品に関する権利は弊社に帰属します。したがって、弊社の書面による同意なくしてその全部もしくは一部を複製またはその他の方法で配布することはご遠慮ください。

商号等: ロベコ・ジャパン株式会社  金融商品取引業者 関東財務局長(金商)第2780号

加入協会: 一般社団法人 日本投資顧問業協会