For many September has got to be the worst month of the year. Students have to start waking up early to go back to school and traffic becomes a nightmare once again on the streets. The weather is sticky and the rain puts an end to a weekend at the beach.

If these aren’t enough reasons to make September the worst month of the year, often this period happens to be the worst month for the equity markets. No wonder everyone waits with anticipation for October, hoping for better things to come.

In September the Euro Stoxx 50 lost 5 percent of its gains for the year. Equities started off the month on a positive note after the ECB President, Mario Draghi, told investors that if economic data in the Eurozone had to weaken further, the ECB will go ahead and increase its quantitative easing program.

But the euphoria was short lived after the Fed decided it was still pre mature to raise rates. The Fed created further uncertainty in capital markets because it appeared to somewhat be influenced by negative events outside the US. Officially the Fed stated that it did not raise rates because inflation is still far off from its 2% target and the headline labour data is not realistically depicting the true employment situation.

I do not recall the Fed chair ever taking a decision based on what was happening outside of the US. With jobs and growth data coming out positive in the US, a rate hike would have removed uncertainty from the markets and allow investors to look forward rather than get stuck in a rut.

But the award for having spoilt the party for equity markets in September has got to go to Volkswagen. I couldn’t believe what I was hearing when it was announced that the company that I considered as a benchmark for integrity was accused of cheating and manipulating emission controls.

During the month of September alone, Volkswagen lost 37 percent. One cannot comment on whether the drawdown was exaggerated or not because in doing so, Volkswagen opened pandora’s box, creating too much uncertainty about the value of the company.

But every cloud has a silver lining. After the sell-off post the Volkswagen announcement, I am of the view that markets have bottomed especially for European equities.

Going back to the drawing board and looking at valuations, even by factoring in mediocre growth in sales and margins, companies are still looking attractive.

I am optimistic about equity markets heading into the final months of the year. Just like markets can correct aggressively, they can also rebound with the same aggressiveness, so be patient.

Don’t trade on sentiment because the house will always win. Stick to your valuations. If they are realistic, the probability is the markets will turn and that price target will be reached. But things don’t happen overnight and it takes time.

October will hopefully bring with it a gush of fresh air as well as new opportunities in the equity markets. We will once again go through the ECB and Fed meetings as well as Alcoa kicking off earning season. Markets are currently pricing in a lot of negativity. If companies depict a brighter

future than the markets are expecting and if the ECB and Federal Reserve play their part in reducing uncertainty from capital markets, October will give investors the hope that September took away.

This article was issued by Kristian Camenzuli, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.