After a tough week for global markets, the UK’s benchmark index looks like concluding on a high, with its biggest rise since October 2011 at closing yesterday (27 August).
The FTSE100 was up 3.7 per cent, adding £60bn to the value of the UK’s leading 100 companies, ranking among the top 50 days since its inception in 1984.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said this illustrated why it is a bad idea to sell out in a market rout.
“Black Monday was a truly dreadful day for stock investors, but it’s been followed by big bounce, with the Footsie now back where it ended last week. Markets tend to over-react to both good and bad news, so sharp falls are often followed by strong rallies.”
Yesterday saw equity indices across developed markets making gains, after better than expected second quarter US GDP growth figures, up at an annualised rate of 3.7 per cent in the three months to June 30, from an initial estimate of 2.3 per cent. In the US, the S&P 500 opened 1.3 per cent higher at 1,965 as a result.
The Chinese economy, at the heart of much market woe on ‘black Monday’, also looked brighter, with a rise in commodity prices and rallying stock markets.
Franklin Templeton’s Michael Hasenstab told FTAdviser sister title Investment Adviser that Beijing’s decision to devalue the yuan was “not a signal of massive depreciation to come” for either the renminbi or other Asian currencies, with recent panic being overdone.
Mr Khalaf commented that when markets are behaving erratically, investors should sit on their hands and stick their fingers in their ears too if they can.
He added that markets are now presenting some interesting income opportunities. “The UK stock market is now expected to yield 3.9 per cent over the next year, compared to 3.5 per cent in May, so if prices have further to fall, dividends at least provide a bit of a cushion for investors.”
peter.walker@ft.com
