Volatility Up In August As Investors Sell Off: JPM Prime Brokerage

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S&P 500 (INDEXSP:.INX) followed up its July rally with an August correction as risk assets were sold off. The index fell by more than 3 percent overall with utilities and financials performing the worst and materials nearly breaking even as focus returned to macro factors, according to a JPMorgan Chase & Co (NYSE:JPM) prime brokerage report obtained by ValueWalk.

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Volatility in emerging markets

“The month was characterized by a renewed focus on macro issues, including tensions in the Middle East centered on Egypt and Syria, heightened volatility in emerging markets, continued uncertainty over the prospect and timing of Federal Reserve tapering, the choice of Ben Bernanke’s successor and upcoming federal elections in Germany slated for September 22,” the report says.

Together, these events increased uncertainty, and equity markets were sold off in the U.S. and abroad. The S&P 500 (INDEXSP:.INX) fell 3.13 percent, making August the index’s worst month so far this year. The iShares MSCI World Index (MUTF:URTH) fell 2.1 percent, the Nikkei fell 2.04 percent, and the HANG SENG INDEX (INDEXHANGSENG:HSI) and MSCI Europe Index were nearly even. Financials and utilities each fell by more than 5 percent, while materials and tech stocks fell by less than one percent.

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Volatility up across all asset classes

Fixed-income assets and credit were also weak last month, and volatility was up across all asset classes, with S&P 500 (INDEXSP:.INX) volatility hitting 15 percent compared to 8.7 percent in July, though it should start to drop again by the end of this month. Syria appears to be reaching a diplomatic settlement, the German elections are just around the corner, and with Larry Summers out of the picture we should have an uncontroversial nominee for Fed chair (Senator Charles Schumer has just added his voice to those calling for Vice Chair Janet Yellen to get the nod). Volatility in emerging market equities went up to 28 percent in August, nearly the highest point this year.

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“Global macro strategies suffered the steepest monthly decline (-1.20 percent) among the main hedge fund strategies. Losses were acute for managers with emerging markets exposure in August,” says the report. Hedge funds lost 0.73 percent value in total, with event driven strategies faring the best, dropping just 0.04 percent, and long-short funds falling 0.69 percent in aggregate last month.

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