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Spooky! What's haunting these 10 wealth professionals this Halloween?

A US debt fright, ghoulish gilts and grim Greece are among the things haunting our readers this Halloween.   

Tom Becket, Psigma Investment Management

Before I worked in the financial industry I was “well hard”. Indeed, even for the first few halcyon years of rising markets and easy profits (2003-7), I considered myself a man of steel. Now after 5 years of strength-sapping volatility, collapsing markets and monster rallies, I am a broken man.

What am I scared of in financial markets? This is easy to answer, as I am scared of everything. The US, Europe, China and the Middle East. Geopolitics, fiscal crises and de-leveraging. Margins that should revert to mean and ultra low bond yields. Not knowing how one can diversify in a highly correlated world. Having too much risk when markets are falling and not enough when they start to rise. Actually it is this last fear that stalks me most.

Holding a predominantly cautious investment philosophy has served our firm well over its life, as many assets have disappointed and investors have welcomed a “safety first” investment approach. However, with bond yields anchored at uber-low levels and opportunities in “safer” assets mostly in the rear view mirror, investors are being forced to take more risk.

There is a chance next year that equity markets could soar, as investors believe that the US fiscal issues are dodged, the US housing market improves further and the Great Monetary Easing Part II fuels risk appetite. Not participating sufficiently in such an equity-driven environment, particularly given we have reached the natural capital appreciation ceiling on credit markets, could be crippling for the wealth industry. Such a chance might still be considered low, but it is my favourite worst nightmare.

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Andrew Morris, Signature

I am getting a “Gilt complex” with 10 year gilt yields materially below 2%, this feels frighteningly expensive compared to long-term averages. Risk averse/income seeking investors are being exposed to a potentially material sell off in values at the unwinding of QE and or a rise in interest rates. This is a potential horror story in the making, particularly if income seekers also take on more risk to increase yield.

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Haig Bathgate, Turcan Connell

My biggest worry is the Gilt-Edged Ghoul – conventional gilts remaining hugely overvalued and the yields remain around the lowest level ever in the 300 year history of the Bank of England. As most new issuance has been at the long end of the yield curve the index has a lot of capital risk which will result in major losses when expectations of interest rates rise.

Unless you think that inflation will not return for the next 50 years (a crazy assumption given the amount of money that has been created over the past few years to purchase these gilts through quantitative easing) you should avoid this asset class as the fallout is likely to haunt investors for years to come.

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Graham Duce, Aberdeen Asset Management

There is always so much to worry about with the 'Big 3' of; Eurozone crisis, US Fiscal Cliff and China slowdown. However, markets can still progress against a backdrop of worry, as we have witnessed in the last few months. Here are just a few goulish things for a restless sleep:

  • Draghi runs out of spin
  • Spain procrastinates in asking for help
  • A spike in the oil price as Middle East situation escalates. Israel gets more militant
  • The improvement in the US econ falters and the housing market stalls after showing some signs of life
  • EZ recession deepens, which jeopardise peripheral govs timelines to reduce budget deficits
  • Apple has a profits warning;
  • We have an acceleration of cautious company outlook statements
  • Investors give up on equities
  • Investors get too used the high returns that we have enjoyed in IG credit this year
  • Fundamental bottom up stock pickers get over run by ETFs and high frequency trading hedge funds
  • Investors remain wary of investing with boutitque managers
  • IFAs aren't prepared for RDR
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Tony Yousefian, OPM Fund Management

My biggest fear is we wake up one morning and learn that oil price has spiked in the Far Eastern markets. Reason: Israelis have launched a military attack on several of Iranian nuclear installations.

In this scenario it is quite feasible that spot oil price could easily hit $200 and more. In which case all bets will be off the table, the equity markets will take a big hit and apart from the price of oil, the only other beneficiaries will be Gold and the US dollar.

How much of a threat is this: This is a real and present danger which is very much under estimated by the markets as the common belief is that sanctions against Iran are beginning to work. There is hyper inflation and the Iranian Rail has depreciated by 80% over the last few months against the US Dollar, but the Iranians are determined to continue with their nuclear ambitions and the Israeli patience is rapidly running out. They may well make their move with or without US in not too distant future.

'Tin hats anyone'?

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Ashok Shah, London & Capital

Although only a slim probability, the nightmare this Halloween must be if the US Congress fails to agree an alternative to the potential $720bn fiscal cliff and fails to lift the debt ceiling. The ripple effects could be catastrophic, equity markets would collapse, the US would be plunged into recession and depress the World economy with it, credit ratings would be cut and the US would go into technical default. Certainly a nightmare you would want to wake up from!

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Raj Hallen, Premier

Many private client and investment managers would cite the eurozone as their biggest nightmare; for me, it was last year and the year before that, but then I experienced eurozone fatigue. This year, my biggest nightmare has been the slowdown in China and its impact on the global economy.

China’s third quarter GDP growth of 7.4% marked the seventh successive quarter of slowing growth, and the slowest pace of growth since the first quarter of 2009. Unlike the rest of the Asia Pacific region, the slowdown is the result of weaker exports and declining domestic demand. Exports of capital goods from China to countries such as Germany and Japan have fallen, as companies have invested less in new factories.

The slowdown in the economy has become a drag on US manufacturing earnings. Aluminium producer Alcoa and Cummins the engine maker have highlighted slowing demand from the region.

Domestically, construction related sectors have fared the worst and this has clearly had a knock on effect for global markets in commodities, heightening fears in big commodity exporters Australia, Brazil and Indonesia that the China led boom in resources could be coming to an end.

Having said that though, the World Bank expects this deceleration of growth to reverse and to then pick up in 2013, helped by monetary policy measures introduced earlier this year and an acceleration of central government investment spending.

Let’s hope that is the case for an economy we are all relying on to keep us all afloat, or things could get a lot worse!

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James Calder, City Asset Management

  • US Elections – not so much who wins but if either party can carry both houses and create strong government then markets will take comfort – if we have the houses dominated by one party and the whitehouse by another this will lead to confusion and uncertainty, which has many implications not least of all for the impending US fiscal cliff;
  • A carry on from the US is if Romney is elected how far will he go with fiscal policy and what implications it will have monetary
  • policy especially as he has made it clear he does not favour Bernanke’s approach?
  • In general politicians ability to continue to mismanage the situation – Europe is a particular worry;
  • Japan’s levels of huge and unsustainable debt – then picking a fight with their largest trading partner over a rock;
  • the Scottish football team’s inability to qualify for a world cup.
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Gavin Haynes, Whitechurch Securities

As a portfolio manager the “black swan” event is your worst nightmare that can throw your investment strategy into turmoil.

However, strong your research and investment process, left-field events from the political sphere, conflict, natural disasters or corporate collapse can undo all your hard work and can instantly change the investment backdrop and how your portfolios should be positioned.

During my career 9/11 remains the biggest single event that changed how the world was viewed; but there have been many unforseen events over the past decade that have proved challenging and conflict in the Middle East remains a serious concern.

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Ben Seager Scott, Bestinvest

What scares me the most in the markets is political pandering and brinkmanship. There are any number of horrors lurking across different markets, whether it be the ghost of borrowing past in Europe or the fear of economic calamity in China. Regardless of whether you agree with the approaches being taken by central banks across the world or the economic advice being given to politicians, all of these interested parties are generally focussed on trying to fix the global economy – and they are therefore moving on economic cycles.

By contrast, many – though I accept not all - politicians move electoral cycles, and there is always the temptation to forego medium and long-term stability for short-term gain. As we have seen across parts of Europe and throughout history, reforms can often be uncomfortable in the short-term, and this is where opportunistic politicians can play on short-term populism to win votes at the cost of the economy. This is exactly the sort of thing that will spook investment markets.

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