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"Global equity markets were sideways to flat in October, with the MSCI World Index down 0.4% over the month, in Sterling terms. Only UK equities were marginally positive. Global bonds were also flat, although gilts were down. Investors’ hesitancy resulted from worries around the outcome of the US Presidential election, concerns about growth in China and the leadership hand-over there, and the uneasy stall in Europe. Consequently, the lack of direction meant there were no clear market winners, certainly not on valuation grounds.

This stasis was reflected across the portfolios, with little or no trades in October.

We remain hopeful that the US fiscal cliff will be avoided as the alternative – the hit to US GDP and the impact on the global economy – is too hideous to contemplate. So far, the politicians’ language has been reasonably conciliatory. We believe the US economy will continue to grow into 2013, building on improvements in the manufacturing and housing sectors. That, coupled with fiscal stimulus from the new Chinese government at the end of the first quarter next year, should result in a more encouraging background for global growth, albeit at around trend level. This is despite the continued recession in Europe. We remain constructive on equities, but mindful of the fact that risks continue with this bias, despite the fact that volatility has technically been low. We expect equity volatility to increase next year, which could lead to violent rotations in sectors. In fixed income markets, the level of spreads does not provide a buffer from inflation surprises, especially if governments decide to cancel debt."

David Coombs, Head of Multi-Manager Investments, Rathbones

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