Stock markets worldwide have been sent into a spin by a combination of factors, but primarily driven by the situation in China. Massive daily falls in market value sent shockwaves around the world which have been followed by a rollercoaster of responses on the various exchanges. Investment managers in the islands say that the changes are more of a revaluation rather than a crisis. And they agree that the smart investor might do well as share prices fall.
‘At a time when developed markets were losing momentum in typical low-volume August conditions while nervously awaiting to see whether US interest rates were going up in September, the events in China proved too much to absorb,’ said Nigel Cuming from Canaccord Genuity Wealth Management.
‘However, the setback means that previously expensive markets such as the US and the UK to a certain extent are now considerably cheaper and there will be bargains to be had in the likely further weakness that we can expect in the short term.’
Mark Bousfield, managing director of Ravenscroft Investment Management, said the obvious question was whether the week’s market activity was a short-term correction or the start of ‘something more sinister’.
‘The honest answer to this – and not one you will hear from many television or newspaper pundits – is simply that nobody knows. What we do know is that market dislocations undoubtedly create opportunities.’
Mr Bousfield said that the ‘crisis’ – which appeared to be easing slightly as markets recovered yesterday morning – was not only centred on China.
Although it involved the devaluation of the yuan and an economic slowdown, which caused global trade concerns, this was exacerbated by collapsing commodity prices and other signals of economic growth slowing, and the end of low interest rates in the UK and the US.
‘But none of this is new news. So why did all of these things come to a head; why all of a sudden did investors think that these things matter?
‘Ultimately, it’s behavioural. Equity market sell-offs don’t necessarily need a specific trigger. Often they are more of a randomly generated stream of consciousness amongst investors that “now is the moment”, which of course is self-reinforcing and can result in a sell-off.
‘It’s also important to put the sell-off into context.
‘Throughout history, ten per cent corrections have been a regular part of market cycles and we haven’t had one for about four years.’
His solution for investors was to stick to the plan.
‘It is important not to get derailed by the volatility or negative forecasting – read guesswork – and remain focused on your long-term investment objectives.’
Tristan Hanson, head of asset allocation at Ashburton in Jersey, part of the First Rand Group, which also includes Guernsey-based FNB, added: ‘Bouts of abrupt volatility are nothing new and usually bring opportunity for patient investors.’
