This month, our valuation date of 4 December coincided with the long-awaited European Central Bank (ECB) rate meeting that caused European markets to tumble by 3 per cent in a single day.
Markets were disappointed by Mario Draghi's timidity in cutting the overnight deposit rate to -0.3 per cent from -0.2 per cent and leaving asset purchases at €60 billion (£43 billion) per month, despite his dovish rhetoric since the October forum at Sintra in Portugal.
Most analysts had expected the ECB to take more drastic action to tackle prolonged low inflation, rather than tinkering around the edges, and retaining the monthly purchase amount caught everyone off guard. The euro surged more than 3 per cent against the dollar, its best one-day gain in more than five years.
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EQUITIES LOOK LIKE THE ONLY ATTRACTION
Until then, it had been assumed that bullish sentiment from the ECB would somehow balance out a rate hike from the US Federal Reserve.
In the event, the market's reaction to the ECB's move could ironically provide another excuse for the Fed to delay, as it will not want to raise rates if markets are in turmoil, while the sell-off in bonds and a stronger euro will tighten financial conditions in Europe and make inflation even harder to generate.
With Draghi's promise to do as much as will be needed now looking very thin, and Fed chair Janet Yellen facing the prospect of tightening into an economic slowdown, central bank influence as a whole is diminished, which is far from reassuring.
One reason the markets are so fragile is that the recent rally was very different from previous ones. Equities have been the only attractive place on the planet.
Only investors such as pension schemes with liabilities to match were prepared to add to their investments in government and corporate bonds tarnished by the weakness in long-term interest rates and the growing risk of default in the high-yield market.
The economies that led the way were the US and UK, but their dynamics will change as both countries are set to raise interest rates in the near future.
Corporate earnings are also weak, with S&P 500 earnings falling 4.5 per cent in the third quarter on sales down 4.6 per cent, with patchy performance particularly among mid-sized and smaller companies.
BUYING INTO ASIAN EMERGING MARKETS
The question for our portfolio is therefore whether to keep betting on the same old combination of risk appetite, monetary support and economic hope that powered equity markets in 2015. Arguably the situation has changed, but there are a lot of conflicting messages.
US companies can no longer improve margins simply by squeezing labour costs, for example, but US unemployment continues to fall and wages are rising, so growth in consumer spending should not be derailed.
Of course, the spike in the euro has given commodities a little bounce, and could help support precious metals for a few months. But the euro's rise is also hastening the dollar's shift to a period of depreciation, and a weaker US dollar tends to be associated with an increase in investor appetite for risk.
Critically, not only is China slowing, but the resulting overcapacity is not being tackled, so as not to stir up social unrest - with the result that the world's most populous nation remains a major contributor to global deflationary trends.
Investors have reacted by moving away from small and mid-sized companies and cyclical industries into large popular names.
While this is going on, and the world flocks to defensive positions, growth stocks are looking cheaper on a relative basis, and the recent convergence in correlations between markets could start to give way next year to selective opportunities.
Japanese and European equities might deliver healthy gains in 2016 thanks to moderate economic growth and additional monetary stimulus.
Emerging markets, so shunned in 2015, could stage a strong recovery as their lowly valuations normalise - particularly Asian stocks, which trade at a marked discount to their Latin American counterparts. Russian stocks could also bounce back if the West lifts its economic sanctions.
We have therefore diverted some of our cash pile to the purchase of 300 shares in DB X-Trackers MSCI EM Asia Index Ucits ETF, with the aptly named ticker XMAS, which invests in eight Asian countries and aims to represent 85 per cent of the readily available shares in each industry sector.
Alternatives include the iShares MSCI AC Far East ex-Japan ETF (IFFF), which provides diversified exposure to large- and mid-cap stocks in Asia, and the UK-listed RBS Market Access DAXglobal Asia ETF (ASDX), which synthetically tracks the performance of the 40 largest stocks from across the region.
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