Markets may have regained a degree of balance since what has been dubbed ‘Black Monday’ but sell-offs of the magnitude seen since mid-August undoubtedly unnerve investors.
No matter how often investors are reminded that investing is a long-term business, it is – to say the least – uncomfortable to see a drop of over 10% in the value of shareholdings over such a short period.
As ever with these periods of market dislocation, every investor must ask themselves if there is genuinely something to worry about or if it is just markets’ so-called ‘animal spirits’. The answer to that question affects whether an investor sells out with the aim of avoiding further losses or holds on in the hope of recovery.
In the case of China, we may simply be seeing an unwinding of a stock market bubble. Historically vulnerable to the influence of speculators, the Chinese market had risen dramatically over the past 18 months and some measure of readjustment was always likely. The economy is certainly slowing down, with plenty of market-watchers having suggested the Chinese economy needed to do so.
There is, however, an alternative view. This has China on the brink of collapse, laid low by the weight of its internal debts and a speculative property bubble. Policymakers’ ham-fisted intervention in markets, it is argued, have revealed how worried they are of any disruption, given the state of the economy. Both narratives have some validity and demonstrate how difficult it can be to see clearly until well after the event.
A few general lessons from previous market routes are worth remembering though – not least that there can be significant bounces in the days and weeks that follow. Looking to sell up and then buy back in again is likely to see investors miss such upturns. It also adds trading and advice costs – perhaps the one aspect of investing over which people have some actual control.
August also tends to be a difficult month to make big investment decisions, as thin trading often produces significant market swings. When traders return to duty after their summer break, market order is usually restored.
It has been said many times but it bears repeating – in most circumstances, it will make sense to stay invested, or even to buy more.
Valuations have been relatively unattractive of late and investors will now just be able to pick up a bargain.
If you would like to discuss any financial planning issue, please contact Graham Walker
, Director of Lovewell Blake Financial Planning on 01603 619 620 and he will be happy to help.