Yesterday (15 October), the FTSE 100 suffered its biggest one-day fall this year, losing around £46bn in value and closing 2.8 per cent down, amid fears over the stability and strength of the global economy.
Investors abandoned risk assets and fled to safe havens following disappointing US data that drove fears of a slowdown in global growth.
Equity markets and government bond yields across the US, UK and Europe plummeted, continuing the rotation away from risk assets seen so far this month.
Chris Williams, chief executive at Wealth Horizon, explained that during a period of falling inflation and low wage increases, the UK could find itself at particular risk of catching the economic epidemic that is spreading across the eurozone.
“That said, the FTSE is less indicative of UK companies and more in tune with the health of the global economy. With UK bond yields having dropped to around two per cent, this suggests that investors are keen to put their money into the safe haven that is the UK government.”
He added that now is not the time for investors to panic or take knee-jerk reactions.
“Investing is a long term commitment and it’s important to stay the course and see how the market readdresses this fall over the coming days and months.”
Dominic Rossi, global chief investment officer at Fidelity Worldwide Investment, commented that in terms of the longer-term market cycle, the firm remains bullish.
“The economy and market is mid-cycle and a mid-cycle correction would offer an opportunity for investors to get into the market at reduced valuations.”
His colleague Jeff Hochman, director of technical analysis at Fidelity, added: “Each of the preceding mini-spikes in volatility we have witnessed over the last couple of years has led to a distinct ‘buy-the-dip’ mentality among investors.
“Generally, this bull market has been defined by an ongoing series of lower highs in volatility. The outlook suggests that this underlying low-volatility environment will remain intact for some time to come.”
peter.walker@ft.com
