The great firewall of China

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Rowan Dartington Signature’s Guy Stephens looks at the geopolitical conflicts making a mark on global markets as September proved to be a volatile month.

September was a very volatile month, as can often be the case. It experienced the highest close on the FTSE-100 this year at 6904.86 on the 4th before dropping to the lowest of the year at 6446.39 last week, albeit just two days after the month end.

The markets have had a lot to absorb on the geopolitical front; most notably the continued fallout from the Ukraine/Russia dispute and the impact sanctions are having on European businesses, along with an escalating level of conflict in Syria and Iraq.

Then there are the ongoing concerns of the market regarding interest rates – the anticipated timing of the rise in interest rates in the UK and US continues to gyrate, from early next year to the second half of the year.

The not wholly unexpected resurgence of the US Dollar is a double edged sword for the US; imports are cheaper, but exports become dearer, and it is deflationary, something the Federal Reserve fears. In Europe liquidity measures and potential QE are hot topics and of course there has been the issue of Scottish Independence. All of these have featured over the last month so perhaps the volatility shouldn’t really be a surprise.

However, perhaps the most worrying event has been the protests in Hong Kong which brought the democratic desires of the ex-colony into sharp focus. As investors, we are well aware this is an issue that will rear its head one day, perhaps when the economy goes into decline but last week’s experience was a surprise.

Thoughts of Tiananmen Square were not far from people’s minds and no doubt the authorities too.  Clearly with the world’s media watching, keeping the peace was all important, and possibly the passage of time and the rapid development of China has created a willingness to be more patient.

For now the protests have started to dissolve and talks are yet to be agreed, but the desire for political freedom is far from dead and it is something the majority of the population seek. So this isn’t the end of the protests, it’s probably just the beginning.

Whilst sympathetic with the democratic aims of the protesters, the course of action adopted by the authorities is market-friendly and suggests there will be dialogue and no bloodshed. It has however been a wakeup call, reminding us of the political risks in the region, as the Hang Seng index fell by 8%.

More generally, the markets have now encountered some buying activity and we see no reason for the markets not to recover some momentum after what had been a 5% consolidation. A little concerning at the time but needed perhaps so that we can move on.

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