OREANDA-NEWS. In August, the global financial market demonstrated rather high volatility. After the US Federal Reserve confirmed its intention to start reducing the quantitative easing (QE), many market players preferred to lock in profits on the stock markets.

Given the typical low business activity in August due to the peak of the holiday season, sellers managed to exert enough pressure on the prices. As this was happening throughout the year, once again the markets of developing countries were affected most, the only difference being that the strongest decline was shown by exchange rates of local currencies against the US dollar and euro (rather than by stock indices), especially of the countries with high current account deficit. This is due to the fact that the rise in interest rates in the debt market causes problems in financing this deficit. Indian rupee stood out crashing by 8.5% over the month. The drop was so dramatic that the officials of India’s Ministry of Finance had to urge monetary authorities of other developing countries to consider the idea of ??joint massive foreign exchange interventions on the international market.

A bright spot against the general background was macroeconomic data released in Europe and China, which have given hope that following the United States the entire global economy emerges from the crisis at last. However, the increased geopolitical tension due to the events in Syria did not contribute to the return of buyers to the market, so that the majority of stock markets closed the month in negative territory.

On the global bond market, the trend for gradual growth of returns continued. At the moment, all attention of the market players is focused on the next meeting of the US Federal Reserve (17-18 September), which may declare the first real steps for closure of the QE programme. And whereas almost no one doubts that reduction will begin, this fact being reflected in the current bonds prices, the question about the scope and timing remains open. Another important point is whether the Fed will announce a target rate for the period up to 2016, and if so, what it will be. It is important to note that the current policy of the Federal Reserve differs from that in earlier economic cycles. If actions were important earlier (decrease or increase of the rate depending on the economic situation), now the promises to do something or other under a certain scenario are more important.

Against this background, activity on the global bond market almost came to a standstill, most investors playing a waiting game.

The fund managers adhere to the previously developed strategy. We would like to remind that stock funds have virtually no investments in developing countries since we evaluated the risk of local currency fall as very high. Indices of developed countries take up the main share, with currency risks being minimized on the whole as far as possible. Using the index growth, in the middle of the month the fund manager decided to lock in some profit on current positions in order to restore them at a more attractive level. This tactic and the structure of the fund paid off and made it possible to show better results than the market. With the normalization of the geopolitical situation and clarification of the Fed’s policy, the plan is to restore the previously closed positions in full, focusing on the markets of developed countries.

In bond funds, no active steps have been taken. There is still a high cash component due to very low liquidity and uncertainty on the market. However, it should be noted that the current yield on US debt securities is already quite close to the levels that we predicted earlier, so the fund manager is considering the possibility of reducing the cash component when the Fed’s position regarding the QE cut rate clarifies.