Financial markets have started the year in
a volatile mood and we’ve seen sharp sell-offs across all major equity markets. Indeed, it
was a worst January for stocks since 2009. There were three clear phases in the sell-off.
The first was led by concerns over China’s move to a dirty peg on its currency and the
weakness in the RMB was translated as weakness in the economy as a whole. The second focused
on the sharp oil price falls and more recently the negative sentiment has shifted to financials,
particularly within Europe. Looking at year-to-date numbers, however, and the more recent rally
has brought the S&P 500 back into positive territory for the year, although losses in
the U.K. and Europe are still in the high-single-digits. What has worked has been fixed income, particularly
the long bond and it has proven once again to be a good diversifier against equity volatility
in multi-asset portfolios. Looking forward, our focus as ever is on the health of the
U.S. economy and our base case is we will not see a U.S. recession this year. With this
in mind, we have not moved underweight to equities within our portfolios and the recent
sell-off has unlocked some good value for investors, particularly within emerging markets.

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