Any driver you like, so long as it’s China

Q3 looks set to enter the records as the most volatile so far in 2015 with the UK 100 index trading in a massive 920pt range that included one 885pt August down-move – that’s 885pts worth of tradeable moves in the index in August alone!

The UK’s benchmark blue chip index has been under pressure from two drivers that are really just one: China.

The US Fed kept interest rates near zero in September, but its reasons for doing so were better digested by the markets than the simple prospect of cheap money for longer. China slowdown concerns ‘made official’ by the Federal Reserve spooked the markets big time, uncovering in the process some pretty reasonably priced stocks while giving gold a welcome boost.

Greek woes receded a little with snap elections returning Alexis Tsipras’ Syriza party to power. With the protracted debate (we’ve grown so used to) about debt relief likely to dominate for the foreseeable, we expect the market’s reaction to follow suit in a slow and steady manner. Greece can be all but brushed aside for now.

Towards the end of September, we’ve seen markets rally as buyers return to pick up some nicely discounted shares while inflation concerns look to be pushing a US rate rise further into the future as Chinese concerns abate and the Fed looks closer to home for indicators, US macro data not looking like making the case for an imminent increase in rates.

The US central bank has two more opportunities to lift interest rates this year. Will it take either? It really doesn’t matter - there will be winners, whatever happens.

Facts

A broad market sell-off in August has seen many a UK Index blue chip stock retreat from highs to trade at sometimes heavily discounted levels. The highlight of the final week of September was, of course, Glencore with its share price swings of 10 – 15% in quick succession – and it’s still not clear what the reason was as analysts and company officials each put forward their own opinions.

Such volatility in the markets means plenty of opportunity, bou it’s vital that you, the trader gets the news that matters, when it matters. It took nearly a whole week for the BBC to start covering the Glencore story. Brokers and traders at city firms like Accendo had their eyes on Glencore months ago, and so did their clients.

In addition, amid so much news and distraction concerning the US central bank and concerns about Chinese and global growth, were you aware that quite a few stocks actually did extremely well while the UK Index index was in a downtrend? If you thought Q3 was a bad one for the markets, take a look at the tables on page 1. IAG +18%, HIK +18%, TUI +18%, ABF +16%, SAB + 15%.....

These are not small gains in what many have deemed a bear market, but you won’t have read much about these companies in the papers or on the BBC. As an Accendo Client, you’d have had got the news that moved these stocks just when the professionals did: when it happened.

Accendo Markets’ ten stocks to watch for Q4 2015

We've picked ten stocks we reckon you should be keeping an eye out for in Q4 2015. Some did well in Q3 and look like they still have momentum, while others have suffered and could be more speculative (like UK Index miner Antofagasta (ANTO)). We’ve looked for the socks we think have the most potential to both continue on their current trajectories or indeed reverse course, having potentially peaked or bottomed out.

ARM Holdings, for example, has been affected greatly by China (fears overblown?) and an Apple results-induced wobble in August (Short-term concerns?). But the company licenses its chips to almost every smart phone and tablet manufacturer in existence. Could ARM be set for a re-visit of its 2015 highs?

Direct Line Insurance is just 2.2% from its own 2015 high, is up 8% since the UK 100 commenced its downtrend in late April and has rebounded 5% from the 24 August sell-off. Is it now overvalued, overbought, or is this a bullish sign of great resilience for this stock?

Of course, market conditions may change as we move into October, which is why it’s so important to be kept up to date with news and events.

Read on for the lowdown on our Q4 stock picks.

Direct Line Insurance Group (DLG)

As a potential Q4 US interest rate rise gets ready to churn up the global financial markets, there are in fact one or two entire sectors that stand to benefit from this. Banks and insurance companies are in that club, and we’re thinking that given the regulatory storm clouds that continue to overshadow the banking sector, it could pay off to consider an insurance company in our Q4 basket. While life insurance companies are seriously long term investors (think decades), the shorter-dated bonds that the non-life subsector prefers will be higher yielding more quickly. There’s no indication as yet that Direct Line’s 2-year uptrend is faltering and we’ve not even seen rates go up yet, but growing expectations mean we may not be the only ones making this observation now.

Will shares continue upwards as the US Fed gets more hawkish? Or is Direct Line now overbought?

Broker Consensus: 57% Buy, 33% Hold, 10% Sell

Most Bullish:   Barclays, Overweight, Target 416p, +13%

Consensus:                                                Target 296p, -2%

Most Bearish:                 Liberum, sell, Target 650p, -19%

NB: All pricing and consensus data from Bloomberg on 28 Sept; Consensus breakdown available on request 

WPP (WPP)

When Sir Martin Sorrell was looking for a basket in which to amass a portfolio of worldwide marketing and advertising companies, who would have thought it’d be actual shopping basket manufacturer Wire & Plastic Products PLC? The rest is history. WPP has its fingers in advertising, lobbying, PR, media investment, research and consulting, while we found no evidence to suggest that Sorrell is still in the basket weaving business. You may never have heard of WPP, but consider the market-moving power that research subsidiary Kantar Worldpanel has when it puts out its notes on UK supermarkets and you’ll have some idea of its influence. Shares are currently trading 18% from highs – will they make it back there on lucrative advertising contracts in the run up to Christmas (it comes earlier every year…)?

WPP, daily chart (closing prices)

Will shares bounce back up and re-test highs of 1600p? Or will they pull back below support at 1300p?

Broker Consensus: 66% Buy, 31% Hold, 3% Sell

Most Bullish:               SocGen, Buy, Target 2035p, +53%

Consensus:                                           Target 1620p, +22%

Most Bearish:  Pivotal Research, Sell, Target 1160p, -13%

NB: All pricing and consensus data from Bloomberg on 28 Sept; Consensus breakdown available on request 

"Direct Line Insurance is just 2.2% from its own 2015 high, is up 8% since the UK 100 commenced its downtrend in late April and has rebounded 5% from the 24 August sell-off"

ITV (ITV)

After ITV boss Adam Crozier praised the BBC earlier in the year, it was recently the BBC’s turn to point rugby fans towards ITV in an apparent admission it’s unable to compete in sports bidding wars with the commercial channels. But the BBC is being encouraged by many to stop trying to compete, letting commercial providers have all the dross that most people love (X Factor). We remain confident ITV can deliver following a change to government legislation that would mean tens of millions of pounds a year in payments from Virgin Media for showing ITV on its cable network, X factor being in full swing with its almost disgustingly rotund advertising revenues and, on the subject of indulgence, Christmas just round the corner.

Will shares bounce back to 2015 highs 280p and above? Or will they break down towards lows of 170p?

Broker Consensus: 61% Buy, 29% Hold, 10% Sell

Most Bullish:     Liberum, Buy, Target 330p, +37%

Consensus:                                   Target 290p, +21%

Most Bearish:  Berenberg, Sell, Target 194p, -19%

NB: All pricing and consensus data from Bloomberg on 28 Sept; Consensus breakdown available on request

"The UK’s benchmark UK 100 index is recovering, having been under pressure in Q3 from two drivers that are really just one: China"

Diageo (DGE)

The drinks maker is putting its underperforming wine business up for sale – a step seen by investors as proactive enough to push shares back into their 2-year trading range after the late August sell-off, which simply exacerbated matters. Granted, a play on a company like Diageo is also a play on China, which has dragged on many a stock of late, but the company is likely to benefit in the medium to long term from its exposure to emerging economies as their growing middle classes seek established drinks brands. Let’s not forget, also, that EM growth rates remain much higher than those of the developed nations, which are already participating fully in a colossal market.

DGE, daily chart (closing prices)

Will shares continue up towards highs of 2140p? Or will they break down beneath support 1710p?

Broker Consensus: 48% Buy, 36% Hold, 16% Sell

Most Bullish:  Berenberg, Buy, Target 1300p, +21%

Consensus:                                      Target 1126p, +5%

Most Bearish:           SocGen, Sell, Target 930p, -13%

NB: All pricing and consensus data from Bloomberg on 28 Sept; Consensus breakdown available on request 

Compass Group (CPG)

Everyone’s gotta eat, right? Compass group is a UK 100 global contract catering and support services company. Revenues across the business of £17.6bn in 2012/13, with £2bn of that in the UK and Ireland alone, have placed CPG in a strong position supporting many sectors – think major Sports, Education, Offshore Oil & Gas and Healthcare. While a likely drawdown in the Offshore & Remote sector due to less oil & gas activity is a concern, we note that Sports related revenue will get a boost from the rugby world cup in Q4 and, of course, income from the Education sector will pick up following the summer holidays. With the recent acquisition of Vision Security Group (VSG) giving clients a fresh alternative to the poorly performing G4S (G4S) in the same package, we think CPG is a great prospect for Q4 trading opportunities.

Broker Consensus: 38% Buy, 48% Hold, 14% Sell

Most Bullish:   Berenberg, Buy, Target 1300p, +21%

Consensus:                                       Target 1126p, +5%

Most Bearish:            SocGen, Sell, Target 930p, -13%

NB: All pricing and consensus data from Bloomberg on 28 Sept; Consensus breakdown available on request