August proved a torrid month for investors around the world and the UK was no exception. Unusually September has continued with this theme.
Previous worries over the outlook for Greece and the Eurozone were sidelined by a huge surge in concern over China’s slowing economy, followed by the knock on effect on commodity prices and mining companies.
Whilst the FTSE 100 dropped almost 17% from its all time high in April, most of our clients have seen much more modest falls. We have always encouraged a diversified portfolio of funds and this has stood many investors in good stead.
That said, investors must ask themselves if there is genuinely something to worry about or if it is just markets’ so-called ‘animal spirits’. The answer to that question affects whether a client sells out with the aim of avoiding further losses or holds on in the hope of recovery.
In the case of China, we may simply be seeing an unwinding of a stock market bubble. Historically vulnerable to the influence of speculators, the Chinese market had risen dramatically over the past 18 months and some measure of readjustment was always likely.
Their economy is certainly slowing but plenty of market-watchers had suggested the Chinese economy needed this to happen.
A few general lessons from previous market shifts are worth remembering – not least that there can be significant bounces in the days and weeks that follow. Looking to sell up and then buy back in again is likely to see investors miss such upturns. It can also add trading costs.
August also tends to be a bad time to make big investment decisions as thin trading often produces significant market swings. When traders return to duty after their summer break, market order is usually restored.
This year the usual September recovery has been delayed by the drop in value of commodities such as copper. This is more exaggerated in the FTSE due to the high number of mining stocks such as Glencore. However remain confident that markets will soon resume ‘normal service’.
It bears repeating – in most circumstances, it will make sense to stay invested or even to buy a little bit more. Valuations have been relatively unattractive of late and investors may now just be able to pick up a bargain.
Don’t forget, Platinum are only an email or phone call away. So please get in touch if you have any concerns or wish to discuss your options for pensions or investments.