Global equities experience a sharp sell-off

Equity markets fall sharply in October.

2 minute read

london bridge

Key points

  • Global equities experience sharp sell-off
  • Technology and materials the worst-affected sectors
  • Japan hit by fears over global trade
  • Emerging markets come under further pressure
  • US treasury yields rise at the month end on brighter economic news

Global equities experienced significant losses in October. A variety of factors, including Sino-US trade tensions, concerns about US corporate earnings and the end of easy money in developed economies, prompted markets to fall around the world. Concerns over Italy’s budget plans and the Brexit negotiations further unnerved investors. However, shares enjoyed a strong rebound in the final days of trading.

The MSCI World index returned -6.78 per cent in local currencies, which equated to a -5.41 per cent return in sterling terms. Highly-valued sectors, such as technology and materials, fell particularly hard, especially in the US, while more attractively-valued areas such as telecoms, utilities, and consumer staples, experienced smaller declines.

Japan was amongst the worst performers largely as a result of fears over a global trade war. Japan is heavily reliant on global trade. A subdued start to the domestic earnings season also dampened sentiment.

Emerging markets lost further ground after suffering their worst month since August 2015. All of the gains made in 2018 were wiped out over the course of the month.

China was among the worst performers with investors fearing that fresh stimulus from the central bank would not prevent a trade war with the US from causing an economic slowdown in the country. Signs that domestic demand might not be as robust as anticipated further alarmed investors. It had been hoped that spending by Chinese consumers would offset any slowdown in export growth.

US stocks posted their worst monthly performance since 2011 with concerns about higher interest rates and trade war worries rattling investors. However, strong earnings from General Motors and Facebook lifted sentiment at the end of the month, prompting a fresh surge in global equities. Optimism that the US and China could reach an accommodation over trade provided a further boost to spirits.

European markets suffered reverses but fared less badly than other regions. This was despite concerns of a clash between Brussels and Rome over the latter’s budget plans and the continuing uncertainty surrounding Brexit. The European Commission demanded Italy revise its 2019 budget proposals and rein in its spending plans yet there is little sign of the Italian government backing down.

Government bonds experienced a mixed month. The yield on 10-year US treasuries rose to 3.12%, compared with 3.05% at the end of September. News that U.S. consumer confidence rose to an 18-year high in October drove yields sharply higher at the end of the month.
However, German bund yields fell sharply, partly as a result of concerns over Italy.

The extra level of interest investors demand to hold Italian ten-year government debt relative to comparable German bonds widened sharply over the month.

Investors are worried that the clash between the Italian government and the EU could spark another eurozone crisis. Yet other eurozone countries appear unaffected. Ten-year bond yields in Spain and Portugal, key barometers of investor sentiment towards peripheral eurozone countries, moved only slightly higher over the month.


Related views

Important information


Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (AIGSL). Unless stated otherwise any views and opinions are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. Information contained herein has been obtained from sources believed to be reliable, but has not been independently verified by Aviva Investors and is not guaranteed to be accurate. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. Nothing in this material, including any references to specific securities, assets classes and financial markets is intended to or should be construed as advice or recommendations of any nature. Some data shown are hypothetical or projected and may not come to pass as stated due to changes in market conditions and are not guarantees of future outcomes. This material is not a recommendation to sell or purchase any investment.

The information contained herein is for general guidance only. It is the responsibility of any person or persons in possession of this information to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. The information contained herein does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorised or to any person to whom it would be unlawful to make such offer or solicitation.

In Europe, this document is issued by Aviva Investors Luxembourg S.A. Registered Office: 2 rue du Fort Bourbon, 1st Floor, 1249 Luxembourg. Supervised by Commission de Surveillance du Secteur Financier. An Aviva company. In the UK, this document is by Aviva Investors Global Services Limited. Registered in England No. 1151805. Registered Office: St Helens, 1 Undershaft, London EC3P 3DQ. Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119178. In Switzerland, this document is issued by Aviva Investors Schweiz GmbH.

In Singapore, this material is being circulated by way of an arrangement with Aviva Investors Asia Pte. Limited (AIAPL) for distribution to institutional investors only. Please note that AIAPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIAPL in respect of any matters arising from, or in connection with, this material. AIAPL, a company incorporated under the laws of Singapore with registration number 200813519W, holds a valid Capital Markets Services Licence to carry out fund management activities issued under the Securities and Futures Act (Singapore Statute Cap. 289) and Asian Exempt Financial Adviser for the purposes of the Financial Advisers Act (Singapore Statute Cap.110). Registered Office: 1 Raffles Quay, #27-13 South Tower, Singapore 048583.

In Australia, this material is being circulated by way of an arrangement with Aviva Investors Pacific Pty Ltd (AIPPL) for distribution to wholesale investors only. Please note that AIPPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIPPL in respect of any matters arising from, or in connection with, this material. AIPPL, a company incorporated under the laws of Australia with Australian Business No. 87 153 200 278 and Australian Company No. 153 200 278, holds an Australian Financial Services License (AFSL 411458) issued by the Australian Securities and Investments Commission. Business address: Level 27, 101 Collins Street, Melbourne, VIC 3000, Australia.

The name “Aviva Investors” as used in this material refers to the global organization of affiliated asset management businesses operating under the Aviva Investors name. Each Aviva investors’ affiliate is a subsidiary of Aviva plc, a publicly- traded multi-national financial services company headquartered in the United Kingdom.

Aviva Investors Canada, Inc. (“AIC”) is located in Toronto and is based within the North American region of the global organization of affiliated asset management businesses operating under the Aviva Investors name. AIC is registered with the Ontario Securities Commission as a commodity trading manager, exempt market dealer, portfolio manager and investment fund manager. AIC is also registered as an exempt market dealer and portfolio manager in each province of Canada and may also be registered as an investment fund manager in certain other applicable provinces.

Aviva Investors Americas LLC is a federally registered investment advisor with the U.S. Securities and Exchange Commission. Aviva Investors Americas is also a commodity trading advisor (“CTA”) registered with the Commodity Futures Trading Commission (“CFTC”) and is a member of the National Futures Association (“NFA”). AIA’s Form ADV Part 2A, which provides background information about the firm and its business practices, is available upon written request to: Compliance Department, 225 West Wacker Drive, Suite 2250, Chicago, IL 60606.