As the quietest part of the year for international markets, unexpected summer events can have a disproportionate impact. 
Indeed, growing tensions between the US and North Korea and domestic unrest in the US for president Donald Trump have seen volatility – as represented by the VIX index – spike and markets fall somewhat.
However, recent events have created a ‘buy signal’ in global equities markets, according to Royal London Asset Management head of multi-asset Trevor Greetham (pictured).
The manager of the firm’s Global Multi Asset Portfolio (GMAP) range said previous signals had been triggered by Chinese currency devaluations in 2015 and 2016, the Brexit referendum and the election of Trump.
The latest buy signal is only the second this year and the first since the French presidential elections in April, as pro-EU centrist Emmanuel Macron defeated right-wing populist Marine Le Pen.
Greetham said: “After months of calm investors are starting to get rattled by geopolitical events with the stand-off with North Korea and large-scale protests in the US causing some disquiet.
“It pays to buy when others are fearful and we are starting to add to the equity positions in our multi-asset funds, increasing our overweight positions there.”
Source: Royal London Asset Management
He said all previous signals had been good entry points for investors to buy stocks. Yet, some investors have become more concerned recently as valuations have continued to tick up.
Greetham added: “Stocks have performed strongly over the last 18 months and valuations are starting to get a bit stretched, but macroeconomic fundamentals remain supportive with global growth continuing at a reasonable pace, inflation pressures easing and interest rates low.”
The RLAM multi-asset head said buy signals “do not come around very often” and investors should pay attention when they do emerge.
While he acknowledged that valuations were looking stretched, he said global growth was expanding at a reasonable pace. Indeed, earlier this year Greetham said the bull market for global equities and bonds had another year or two to run.
With the latest buy signal, Greetham said Japanese equities looked quite attractive. However, given the choice he would buy Japan exposure with a currency hedge to protect against any further devaluation in the currency.
Performance of JPY vs GBP over 1yr
Source: FE Analytics
Greetham added that broadly global markets tend to move together in the short run and it was a reasonable time to add to equity positions.
“We’re starting to [slowly] add to equities rather than jumping in with both feet, but it’s possible that it gets worse before it gets better,” he said.
According to the most recent factsheet, the £42.6m Royal London GMAP Balanced fund – which seeks to provide relatively moderate level of return with a relatively moderate level of risk – had an equities exposure of 32.7 per cent., predominantly through its holdings in the Royal London UK All Share Tracker fund and Royal London US Index Tracker.
In his most recent investment outlook published in May, Greetham had warned investors to prepare to buy summer dips, although the drivers for potential equity markets opportunities had not emerged as expected.
“Stock markets often move sideways over the summer and volatility tends to rise. With that in mind, we have taken some profits, moving equity weightings down towards neutral to give ourselves firepower to buy dips,” he noted.
Other investors may require some convincing that equities markets have further to rise, however. While wariness over current high valuations may prevail, there has been little to suggest that a major correction is due.
Analysts at consultancy Capital Economics said equities’ recent strength had been due, in part, to price/earnings ratios climbing well above their historical averages.
“But we don’t think that valuations have become unsustainably high,” wrote chief markets economist John Higgins and assistant economist Owen Jones recently.
“Higher valuations have been supported by a structural decline in real interest rates, which we think is likely to endure.
“This decline has cut the prospective return from ‘risk-free’ assets, demonstrated by the historically-low levels of developed-market government bond yields.”
They added: “In our view, this has driven the equilibrium valuations of risky assets some way above the long-run averages with which they are frequently compared. With this in mind, we believe that investors’ exuberance for such assets is rational.”
However, the economists conceded that the upside for risk assets was limited and its forecast for the blue-chip S&P 500 index was for it to finish lower than current levels.
Performance of S&P 500 over 10yrs
Source: FE Analytics
Higgins and Jones noted that while they expected equites in other global markets to rise, they were not forecasting “especially large gains” and thought a major correction unlikely before 2019.
Any such correction, they argued, was likely to be caused by the rising risk of a cyclical downturn in the US economy rather than “markets collapsing under the weight of excessive valuations”.