Rocky start to markets in 2016, are we heading for another financial crisis?

In January 26, 2016
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Investments and Markets

Well what a start we’ve had to 2016 in the investments arena!

The FTSE 100 has fallen sharply after the world oil price slump and fears over China prompted more concerns in the markets.  It’s true we have seen a terrible start to the year, which at one point saw the FTSE dip below the 5,700-mark, which knocked £52 billion pounds off its value (there is still over £1.2 trillion pounds to play with!), meaning that for a time it was in what is known as a “bear market”.

The last time this happened was during the depth of the financial crisis in 2009. So are we heading for another global financial crisis and recession?

All the indications are a resounding NO!

The drops we have seen in the markets are not being driven by an underlying credit crisis, high unemployment levels and a failing economy like the recession in 2008/2009.

The nervousness in the investments markets are being driven mostly by fears over China and falls in the price of oil. The price of oil is closely linked to China – whose economic slowdown has weighed heavily on the demand for commodities, such as oil.

The problem is that the performance of the FTSE 100 is more of a reflection of the global economy, rather than the UK, because many of its companies largely operate abroad. We are no longer an isolated market and instead we are part of a global economy, where concerns abroad, will still affect markets here in the UK.

However, these affects are temporary! As we have already seen, the FTSE 100 started bouncing back very quickly and at the time of writing sits at just over 5,900. Most investments experts are saying that the current drops in the market seem “overdone” with overall global growth not likely to see a slowdown and even with the slowdown of China’s economy; it will still remain firmly as the world’s second biggest economy with a stable outlook.

It means that the ups and downs we have seen so violently at the start of this year are mostly being driven by investor nervousness and confidence, not a deeper issue or indication of a failing global economy. In fact the economic data looks solid. Unemployment levels in the UK and US are at low and the International Monetary Fund (IMF) still forecasts growth for the global economy overall. The US economy has significantly recovered to the extent that it’s pushing their interest rates up. The Eurozone economy is also picking up, it still has some fundamental flaws but it’s getting better, and the UK economy has been in very good shape – but, again, it’s slow work. Even in China, (if we cut through the media hype and misinformation) has an economy that is still growing, albeit at a slower rate.

So what does all this mean for Investors?

It is very unlikely we are going to see another financial disaster like we did in 2008/2009; what you are more likely to see are some bumps along the way, which many investors will take advantage of by investing more funds into the market at a discount.

Justin Urquhart Stewart, the popular Markets & Investments Analyst and Commentator gave some brilliant advice in a recent article, he basically said if you are “a long-term investor, you should look straight ahead and ignore the bumps in the road…Investors should act as usual…and you should make sure your money is broadly spread across assets, regions, and not just equities.”

We agree with this approach which is why all our clients are invested in exactly that way and as such, are best placed to ride through the turbulence and enjoy the gains as markets rally back.

Disclaimer

Your capital is at risk. Investments can fluctuate in value and investors may not get the amount back they invest. Past performance is not a guide to future performance. Tax rules can change at any time.

 Please remember your home or property may be repossessed if you do not keep up repayments on your mortgage.  We give clients the option to pay for mortgage advice by fee rather than commission. Equity Release refers to lifetime mortgages. To understand the features and risks, ask for a personalised illustration.

 The Financial Conduct Authority do not regulate, Will Writing, Buy to Let Mortgages, Auto Enrolment, Tax Advice and Estate Planning.

 The opinions contained within this blog, do not constitute financial advice and no action should be taken based on this content alone.

Jasmine has been a qualified Financial Planner since 2008. She has also been a member of the Society of Will Writers since 2012. She is passionate about helping Clients build their wealth and achieve the financial lifestyle they desire. Her areas of expertise are that of Savings, Investments, Pensions and Retirement Planning.

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Disclaimers

The Financial Conduct Authority do not regulate, Will Writing, Buy to Let Mortgages, Auto-Enrolment, Tax Advice and Estate Planning. Your capital is at risk. Investments can fluctuate in value and investors may not get the amount back they invest. The guidance and/or advice contained within the website is subject to the UK regulatory regime and is therefore primarily targeted at customers in the UK. https://register.fca.org.uk/

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