by Tom Stevenson, Investment Commentator at Fidelity International

June 2016

It’s natural for investors to boost the prominence of the UK referendum on EU membership. And indeed it might have a significant effect on markets, either positive or negative. It’s another matter, ahead of time, to know what that impact might be; or how to prepare for the vote. Such a binary event is by definition a coin-toss so, other than ensuring your portfolio is well-diversified, across geographies and asset classes, perhaps with some cash to hand to take advantage of volatility, there’s frankly not a lot to be done.

The reality is, of course, that this is not the only influence on markets right now. But investors are human - they find it hard to hold too many ideas in their heads at the same time. Markets fixate on one or two themes and pay little or no attention to all the other important things going on around the world. That means significant price shifts can take place while we’re looking the other way. By the time everyone’s noticed, the opportunity has passed.

Here are five things that may have crept up on you in the past few months. Start with the Baltic Dry Index (BDI), a widely-watched gauge of the health of the global economy. It measures the cost of chartering a cargo ship and so tends to be viewed as a proxy for how much stuff is being moved around the world and, by extension, the overall level of economic activity. Since the middle of February, the index has more than doubled, rising from 290 to 604. That may be an indication that things are not as sluggish as many investors believe. It’s worth remembering that in the year before the financial crisis the BDI peaked at more than 11,000. Too much shipbuilding and the changing shape of the Chinese economy mean the index is not the bellwether it once was. But, for contrarians, this year’s rally is a straw in the wind.

Another is that the price of sugar has soared in just four months, rising from 12.7 cents a pound in February to nearly 20 cents today. Agricultural commodities are notoriously volatile and prices are heavily influenced by the weather, which makes so-called ‘softs’ a dangerous place for investors. This year’s swing in the sugar price is being blamed on heavy rains in Brazil. Global production is forecast to fall by 17%.

One move you may have been vaguely aware of is the slide in the value of the Nikkei index in Japan over the past year. What may surprise you is its scale. The Tokyo benchmark has fallen from a high a year ago of 20,868 to just 15,434 in June after the Bank of Japan disappointed expectations for further stimulus. That’s a 26% drop. The yen is the main culprit here. Mid-last year a US dollar bought 125 yen. Today it buys less than 104. Japanese shares are fast giving up on 'Abenomics', with persistent deflation making a mockery of the Japanese government's bid to kick-start the world’s third-biggest economy.

Equity investors may have had a tough time of it in the world’s main exchanges but there have been plenty of opportunities for contrarians prepared to dip their toe back into beaten up emerging markets. The impeachment of President Dilma Rousseff in Brazil led many to expect a more business and market-friendly regime and the country’s main Bovespa index rose from 37,500 in January to a high three months later of 54,500. It’s come off a bit since as investors start to focus on the country’s still deep-seated problems but no-one’s going to complain about a 45% gain in three months.

Ahead of the UK vote, investors may have worried about relatively small fluctuations in the value of the pound, some emerging market currencies have performed much more impressive gyrations. Take Russia’s rouble. Last summer you needed 53 to buy a US dollar but by the time January’s China crisis had run its course that had risen to 84. Currently the exchange rate is 66, suggesting a pretty dramatic increase in investors’ appetite for emerging-market risk. The South African rand has undertaken a similar round-trip from 12 to the US dollar to 17 and back to 15.

So while everyone is bracing themselves for some market volatility around the time of the UK vote, it’s worth remembering that the kinds of movements we might see on stock, currency and bond are commonplace. The biggest company in the world, after all, fell from US$132 a share last July to $97 in June. Apple has survived the shock; so too will the markets on the UK vote.