It is not time to panic

Why are global stock markets falling?

There is a general realisation that lifting the US debt ceiling or striking a deal on Greek debt will not solve the underlying problem facing the world economy. Governments, companies and individuals in developed countries are still very much ‘over borrowed’ and therefore need to continue to ‘tighten their belts’ for some time yet which has a ‘knock on’ affect that the prospect for economic growth outside of emerging markets remain somewhat limited.

These growth fears are further compounded by investor worries that Italy and Spain could be the next European economies to default illustrating further that the recent deal struck on Greek debt has quickly evaporated.

Consequently it is increasingly likely that governments will resort again to monetary easing to kick start their flagging economies. This would be despite the high levels of inflation that currently exist. Otherwise we could face a testing time in the markets in the next few months.

With stock markets falling, investors have sought ‘safe havens’ – Gold and currencies such as the Yen and the Swiss Franc. Furthermore, companies with exposure to emerging markets continue to produce good results. Careful stock picking can find good returns even when the economic outlook is gloomy, and there will continue to be good opportunities for investors. We could even see a rally in the markets now that the threat of US shutdown has been averted, as companies may become more relaxed about investing.

One of the main risks for investors is withdrawing from the markets at the wrong time. Time in the markets not timing the markets should continue to be a priority for investors. Furthermore, it is well worth remembering that our clients like many others investors have all diversified their investments amongst various asset classes broadly; Cash, Fixed Interest, Property & Equities, and whilst in the short term will see the value of their investment portfolios drop, this will not be to the same extent as the stock markets generally.

However, the good news is that investors will be rewarded for maintaining the risk within their investments. They will see value in stock prices, particularly in stocks where businesses are in a position to get through this difficult period of the economy in good shape, and where they have rising cash-flows, earnings and dividends. Therefore there remains a significant upside on a three-to-five year view. Investors who do not currently need cash may wish to look at the longer term, and take advantage of these depressed prices, as we look to higher equity values in months and years to come.

If you need more help managing your investments and strategy in the current climate, please get in touch on 01626 833225.