News/Events

Being Ready for Future Stock Market Events [25th September 08]

I bet there were many investment advisers and fund managers who were very happy to see the clock hit 1700 hours last Friday and maybe sit back and relax in front of the television to watch the Ryder Cup. Wow what a week?

There have been so many extraordinary happenings with the collapse of America’s fourth largest bank, the rescue by the American taxpayer of the world’s biggest insurer and the take-over of Britain’s biggest mortgage lender. The fact that the oil price fell to below 90 dollars on Tuesday and the Russian stock market had its biggest one day fall in a decade, was lost in a bewilderment of other statistics and stories. Certainly, you would have needed a sharp eye to pick up the 20% fall in Moscow’s benchmark index on the same day and the fact that the Russian market has more or less halved since the summer – ok what summer? But it seems only yesterday that Russia was all over the news and this week nothing!

I saw one headline that stood out which was ‘Walking through treacle’ and that seemed to sum up investors feelings about putting money into the market now and it is difficult, if not impossible to give specific advice on what financial advisers should be telling their clients.

Set against the background of the headline writers, the answer to the question will strike many as inadequate at best, dangerously complacent at worst but who can foresee into the future, as the answer, I believe, is to do nothing. My main reason for sitting on the fence is quite simply the violent swings in world markets and what ever one does would be based more on speculation rather than a pure investment decision. Interestingly, volatile markets are not synonymous with falling ones and indeed some of the biggest short term losses in the stock market have been followed by even bigger rebounds. On top of this, many bull runs have started when the economic outlook has been looking distinctly bad and co-incided with very high unemployment, high inflation and high interest rates and we don’t have these at present.

There are many interrelated factors that are affecting current investor sentiment and in simple terms, share prices are determined by future earnings and the confidence shareholders place in them – a problem at present. Very little is known about the severity of the ensuing global recession, its duration and depth and therefore just what Companies will earn when battling into a headwind. On top of this, no one knows what the true financial position of the investment houses and where is the real bottom line as who would have expected problems at the Halifax/ Bank of Scotland.

The first action is to make sure you have a well diversified portfolio which is spread both geographically and between different asset classes. And don’t forget, there is the US Presidential Election in November which might bring a fresh view and some optimism and cash deposits rates are likely to be falling so gradually committing cash might be a sensible option and perhaps on a drip feeding basis e.g. monthly or, say, quarterly

Lastly, in time markets do recover, they always do, but maybe they could take a little longer this time.

This article was written by Langtons - Published in the Western Morning News, Money, 25th September 2008