This month's question: Are the recent equity market falls a blip rather than the start of something more serious?
Ben Willis, senior investment manager at Whitechurch Securities
You have to carefully consider your answer to this question. The drivers of the recent market volatility still remain, and so market moves on sentiment can continue for some time. However, fundamentally my belief is that global equity markets can continue to climb from here in the medium to longer term.
Until recently, we had not witnessed market declines and spiked volatility for over two years. The end of that ‘goldilocks’ scenario was initially driven by the outlook for the US economy. Strong economic data has caused investors to worry about inflation and the future path of US interest rates. The subsequent panic led to a sell-off in government bond markets, which fed through to equity markets as risk aversion (and some profit taking) took hold.
It remains to be seen whether we will see sustained market volatility. In the short term, a reality check that markets do not go up in a straight line may prove timely. Stopping irrational exuberance and markets being driven by the ‘fear-of-missing-out’ brigade taking on too much risk and ignoring fundamentals and valuations is welcome in our eyes.
No one can predict which way markets will turn in the coming weeks or months, but our top-down view remains focused on the belief that equities still offer value, particularly versus cash and government bonds. For those prepared to ignore short-term noise, focus on valuations and take a longer-term perspective. Growth prospects and attractive dividends will continue to provide support.
Philip Hanley, director and IFA at Philip James FS
Assuming Brexit, in market terms, turns out to be a local, self-inflicted wound, what might cause the masters of the universe to hit the ‘sell buttons’?
Fund managers have long predicted that governments will stop pumping funds in to prevent crises – quantitative easing was the technical term but it takes many guises.
If a crisis occurs and no help is at hand, panic would, I fear, ensue – Lehmans being the extreme and, hopefully, once-in-a-generation example. The other expected government-pumpings are Trump’s tax cutting and infrastructure spending: the former has made it through, the latter may not.
The terrible twins of inflation and interest rates were the triggers for the recent market stutters. I suspect we may go back, on both sides of the pond, to the ancient use of interest rates to defend currency. In this scenario, both the pound and the dollar become much less important than we’d like them to be, and against the yuan and euro in particular.
Of course there’s also the current, pretty obvious tech-bubble and the inevitable collapse of the oil industry, but like any good barrister, my glass could be half full as easily as it now seems half empty.