World Stock Markets – Separating the drama from the data

With the world’s stock markets showing volatility, concerns continuing about the Chinese economy, and the recent fall in oil prices, some investors could be forgiven for wondering if we’re about to see a rerun of the financial crisis of 2008. However, many commentators are encouraging us to read the data and not be swept along by the drama.

MARKET CORRECTIONS HAPPEN

US stock markets suffered their largest peacetime one-day fall on 19 October on what was dubbed Black Monday, the Dow Jones Industrial Average Index dropped by 508 points or 23% of its value; European and Japanese markets followed suit. This fall was ultimately shortlived, and markets recovered and resumed their upward path.

BELIEVE THE DATA NOT THE DRAMA

With the economic data coming from Europe and Japan still showing positive signs, it is important not to become fixated on short-term market movements at the expense of economic data. The UK banks are in a better financial state than they were ahead of the crash in 2008.

WE’RE MORE GLOBAL NOW

Chinese market performance has been a major focus for world stock markets lately. However, their economy continues to grow, but just not at the high rate it has experienced over the last few years. China is still essentially a planned and centrally controlled economy and many believe that it can weather these blips in its progress to its own brand of capitalism. Let’s not forget that less than a year ago all eyes were focused on the fortunes of Greece. At any one time, there will be concerns about the health of at least one major world economy.

THERE WILL ALWAYS BE BUMPS IN THE ROAD

The basic principles of sound investment remain constant. It pays to have a diversified portfolio with a mix of shares, bonds, property and cash, with a good market spread. We will, it seems, have to weather more market volatility and be realistic about likely investment returns. As ever, the old saying that it’s ‘time in the market’ rather than ‘timing the market’ continues to hold true. Viewing investment as a medium to long-term strategy will help to iron out the inevitable peaks and troughs that markets experience.