August was a soporific, a gentle susurration of stock markets ebbing and flowing without force. The month was a collective holiday from excitement after the mania of Brexit, a stark contrast to last year when a surprise devaluation of the Chinese currency was followed by generalised, if temporary, financial mayhem around the world.
The worry may be that investors could awake with a start, given a US election is approaching as well as a vote on the Italian constitution. Yet to decide what will influence markets in the months ahead it may help to look back and ask a question: an eventful year later, what has really changed?
Consider the apparently divergent paths of the UK and Europe. At first glance British stocks were the smart choice as September began last year. Including dividends, an investor in the FTSE All-Share is 12 per cent richer. By comparison, MSCI’s broad index of European shares which excludes the UK has lost the imaginary shareholder 1 per cent of her capital, after dividends. The markets took their own routes to different destinations.
Yet, if the comparison is approached from the perspective of a US dollar investor, suddenly the difference becomes hard to spot.
Before UK voters decided to leave the EU, the two markets marched in lockstep. Since then they have diverged only slightly. In dollar terms, and with dividends, the UK is down 4 per cent while the rest of Europe has dropped by 2 per cent.
So, for all the political and economic developments of the past year, a form of stasis appears to have set in. Estimates for corporate profits in the UK and Europe have been declining, largely offset by central bank measures which help to support asset prices. With calm restored, little underlying movement has occurred.
Or, to cut it another way, the rising value of UK companies can be considered a form of money illusion. They are broadly worth the same as a year ago, but the pound is not. What it suggests is an evolution of the complaint often heard in recent years, that central banks are the cause of all market movement. All that now matters is the value of currencies, and where they might go from here.