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"Take a Deep Breath"

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"How this plays out is entirely dependent on whether you think China can stabilize and the U.S. and other developed economies can grow," said Isaac Souede, Chief Investment Strategist at Permal. "If you are negative on either, then the bearish state continues. We are not. Why?"

"The US is in good shape, evidenced by the yield curve, consumer confidence, housing and household formation. Europe and Japan are softer due to structural factors and greater dependency on exports to China, but can still grow thanks to the tailwind of lower oil prices."


"The Chinese government needs to avoid a hard landing, especially a rise in unemployment. The pressure is on to use all their policy tools, just like the US had to do in 2008: reduce reserve requirements, reduce interest rates, channel public pension fund assets into the stock market, more fiscal spending for infrastructure. There is a political imperative and the means to succeed."

Opportunity exists here." 

"We should have reasonable entry points for Asian and other emerging markets following this correction. Shanghai still needs to stabilize. U.S. equities are likely to be earnings-driven, dependent on wages and productivity. We like Japan but are a little less bullish than before, while Europe is a mixed picture. What we saw earlier this week means we are less likely to see Fed action in September. As for oil, it appears oversold and should find its way back above $50."

Scotland-based Martin Currie believes the ongoing volatility in global equity markets presents short-term investment opportunities, as they believe the market to be oversold. With both US and European markets selling off by 10% during August, the valuation gap has yet to close.

"On an earnings and price to book basis, the European market is now trading below long-term averages again," reported Michael Browne, Portfolio Manager of Martin Currie's European Long/Short Strategy. "The current situation should be seen as an opportunity for investors."

To the Martin Currie team, the selloff in global equities resulted from: the industrial/economic negative of oil prices; the banking impact of the oil price, as the high yield energy debt selloff augurs sharply higher loan losses; the Chinese slowdown; and the prospect of a US rate rise.

"Although the market has been pricing in an Asian slowdown it may have to do more, especially if the Yuan continues to depreciate," Mr. Browne said. "The market has also been pricing in a major oil, gas and materials earnings slowdown, and will have to do more. However, continued deflation in commodities and import goods have not yet been priced in. Opportunity exists here."  

 

 

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