London and Capital has published its market forecast for captives’ portfolios following the recent market turbulence.
The asset management company cited the Greek debt crisis, a comparatively strong dollar and uncertainty in China, highlighted by the devaluation of the yuan against the dollar by the People's Bank of China in August, as the year’s key events causing captives’ asset investment headaches.
The report stated: “Equities were affected the most by the rise in volatility because it was expected that a sharp slowdown in global economic activity would have a very damaging impact on company earnings”.
“The S&P 500 index was down 11 percent month to 25 August 2015, the low point in the Equity market correction.”
The report went on to conclude: “The index with the highest equity weighting had the worst performance, but even here, although the S&P 500 index was down 11 percent, captive Index 3 was only down by 3.77 percent, thanks to the positive contribution from high grade bonds.”
“Moreover, capping the maximum equity allocation at 30 percent also helped. The other captive Indices fared much better due to their greater exposure to high grade bonds.”
“Ultimately, the captive indices did what they were supposed to do—enhance returns, and protect capital the most for those (same) captives that require access to their capital at short notice.”
Looking ahead, London and Capital predicted that “the main macroeconomic indicators suggest that the global economy is not travelling head-long into a recession”.
“The US service sector is expanding at its fastest pace since before the financial crisis, oil prices are in the doldrums, the yield curve is still positive which is helping to boost banks’ profitability and their willingness to lend and global company earnings are still growing.”
“Consequently, captives with riskier portfolios will see their investment values recover and ultimately prosper, but with bumps along the way.”
