During the third quarter of 2018, the US market was the main driver of a positive performance registered by global equities, despite a high level of uncertainty and trade worries in various regions. US Equities outperformed the other regions as the effect of strong earnings data and economic growth outweighed the impact of the increasing trade concerns with China.

China underperformed as it was impacted by the implementation of US tariffs on $250 billion worth of Chinese goods. In fact, emerging markets in general, had a weak quarter, partly due to a strong US dollar. In Japan, reduced political uncertainty as a result of the re-election of Prime Minister Shinzo Abe as his party’s leader, coupled with a weaker Yen, pushed Japanese equities upwards.

In the Eurozone, equities posted modest gains, with banking equities being the main drag. UK equities generally traded in negative territory following the interest rate hike, while the currency weakened as a result of the ongoing uncertainty regarding Brexit negotiations.

In the bond markets, government yields were up (as prices declined) during the quarter due to positive economic data, particularly from the US. However, the patterns of investors’ flight to safety which emerged late during the previous quarter, re-emerged in August.


Equities in the Eurozone registered mixed performances throughout the quarter, ultimately closing marginally higher. The top gainers were the energy and industrials stocks, while real estate, telecommunications and consumer staples were the main fallers. Despite a positive performance registered by financials as a whole, banking equities saw sharp declines due to fears of overexposure to Turkey and other emerging markets. The Italian Budget was another contributing factor, as the proposed deficit of 2.4% was somewhat higher than generally expected. This stance led to increased political concerns, causing the 10-year Italian government bond yields to rise from 2.68% to 3.15%.

One of the main concerns among European equities, particularly the auto industry, were potential US tariffs and uncertainty regarding the US-China trade war. During the quarter, fears with respect to trade materialised, as a major car manufacturer announced that it would be missing its third quarter targets, as a result of the said trade war. On a positive note, in July, US president, Donald Trump, met with the President of the European Commission, Jean-Claude Juncker, and agreed to work towards zero-tariffs on non-auto industrial goods, while postponing the new car tariffs until a longer term agreement is struck.

Economic growth data remained positive during the quarter, as second quarter growth was revised upward to 0.4% quarter-on-quarter, from 0.3%. Forward-looking Indicators remained relatively stable, forecasting further expansion at a slower pace than the beginning of the year.  The stance of the European Central Bank regarding a potential interest rate hike remained unchanged as it insisted that no change to interest rates will be implemented for at least another year.

United States

The main concern in the US markets for the third quarter was once again the US-China trade war as the Trump administration introduced tariffs on about $250 billion of Chinese products during the quarter. Nevertheless, positive economic data and earnings announcements ultimately prevailed, as the equity market set a new record for the longest bull market in American history.

Unemployment and growth data was consistent with the second quarter, allowing the US Fed to raise the federal funds rate for the third time this year, by 25 basis points. The Fed also suggested that further interest rate hikes are expected during 2019.

The top performing sectors of the quarter were the information technology and healthcare sectors, which were backed by solid earnings announcements. At the other end of the spectrum, the energy sector was one of the main underperformers, as China introduced tariffs on US crude oil.

United Kingdom

UK equities performed poorly over the quarter, with the FTSE All-share index falling 0.8% over the three-month period. This performance was mainly the result of the ongoing Brexit negotiations, as the possibility of a no-deal Brexit still looms with the deadline fast approaching. Such concerns also impacted the currency, as Sterling continued in its downward trend.

The global trade concerns also affected the UK markets, particularly areas of the equity market exposed to emerging markets, such as financials and mining equities. Domestic economic data, however, seemed to be improving, as growth recovered from the slowdown seen earlier during the year.

Emerging Economies

In line with the previous quarter, emerging markets posted another negative performance dominated by volatility during the third quarter, mainly driven by a strong US dollar and international trade tensions. As expected, China was one of the primary laggards, following the tariffs introduced by the US on Chinese goods, as well as fears of further tariffs being implemented.

Similarly, Turkey also registered a negative quarter as geopolitical tensions with the US, on top of concerns regarding domestic inflation, current account deficit and central bank independence, dragged the Turkish Lira substantially lower. South Africa also underperformed following poor economic growth data. On the other hand, Russian equities also outperformed the market, backed by higher crude oil prices. In Mexico, political developments regarding the general elections and a trade agreement with the US, also pushed equities upwards.


The equity market in Malta returned to positive territory this quarter, as the MSE Equity Total Return Index registered a 1.04% gain, led by 11 gainers, five of which posted double digit price increases. Malta International Airport plc shares headed the list of gainers, as its impressive growth in passenger figures persisted throughout the summer season.

On the other hand, among the 12 fallers, Bank of Valletta plc logged the strongest decline in price, following the Italian tribunal’s decision to reject the bank’s appeal against the precautionary warrant related to the Deiulemar case, in addition to developments in the La Valette Multi Manager Property fund case. The Bank rejects the assertion with respect to the Deiulemar case as unfounded on the grounds that the assets placed in trust were practically worthless, and is taking all the necessary measures and precautions to defend its interests and will continue with business as usual.

In the sovereign debt market, yields were significantly higher as 27 Malta Government Stocks lost in value and none posted gains. In the corporate debt market, however, yields were generally down as gainers totalled 31, while fallers amounted to 19.

What Lies Ahead

With different parts of the world at different stages of the economic cycle, we believe that diversification and active management have a more important role in investors’ portfolio than ever before. Portfolios with exposure to low volatility solutions, local opportunities, high quality sovereign debt, high yield bonds, emerging markets and equities should be expected to generate superior risk-adjusted returns compared to portfolios which are focused on a single asset class.

When considering an investment, one should focus on the long-term investment objective within the context of his/her risk profile, and not in search of just the highest income yielding asset class. Moreover, in view of increasing volatility we strongly believe investors should further diversify over time, while avoiding having significant exposure to any one individual holding and asset class. Investors should be patient and have a medium to long-term investment time horizon (5 to 10 years). Timing the market is humanly impossible, but taking advantage of opportunities when they arise is possible. Over the long-term, taking opportunity from short-term volatility, can be among the main contributors to your portfolio’s growth.

We strongly recommend keeping in touch with your investment advisor on a regular basis to re-evaluate and re-assess your portfolio parameters and risk profile as your needs and objectives may change over time. Lastly, we thank you for your continuous support and trust in our services. Should you wish to schedule a meeting with one of our investment advisors, you may reach us through one of the above contact details.