Blame China for shaky markets

octopus-investmentsConcern that China will bring in over-tight monetary policy and suffer a 'hard landing' is the main source of uncertainty in the equity markets, according to Lothar Mentel, CIO at Octopus Investments, a London-based investment firm with $2.5bn under management.

He says this is the reason equity markets have failed to gain traction recently, a situation underlined by news that the equity markets entered a sell-off despite US consumer sentiment reaching a three-month high. Mentel also blames Chinese inflation concerns for the fact that the UK's FTSE 100 has flitted around the 6,000 mark this year “without making any real progress”.

Investors find the situation particularly worrying because China's economic decision-making is opaque and its policy remains “something of a mystery”. However, Mentel is optimistic, holding that the country's measures have so far been gradual enough to avoid a sharp slowdown.

Beyond the Chinese worries, Mentel finds some evidence of investor confidence: “We don’t think that markets are worrying too much about Greece, or the Middle East anymore,” he said.

Mentel says Octopus is adapting to the shaky environment by allowing cash positions to build up and by buying US treasuries. He says these will be a “useful safe haven”, especially if the dollar appreciates after the US Federal Reserve ends its policy of quantitative easing. However, equities remain the firm's preferred asset class.

©2011 funds europe