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Baigrie Davies Blog
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The Chancellor George Osborne warned recently "the recovery will take longer and be harder than hoped". Mervyn King cut the UK growth forecast for 2011 and stated the UK economy had weakened since May.
Even since our last blog a week ago there has been a marked change in global stockmarkets.
If we take the FTSE 100 as an example, the index fell from circa 6000 in early July to 5247 on the 5th August. It then subsequently fell at certain points during the following week to below 5000 and back up to circa 5200 today (though no doubt this will have changed by the time you receive this!).
My point is that we live in an ever changing world. Whilst the global economy, stockmarkets and the valuations of companies are obviously intrinsically linked, they can all change at different times, pace and volumes. Is a company that many were saying was good value in early July no longer a good value company?
Whilst the prospects for global economic growth might be lacklustre, many companies have paid down their debt, (debt being the trigger that started the global crisis in 2007 and which initiated the recent problems) and their balance sheets look healthy. Nevertheless we expect stockmarket volatility to continue until sanity prevails.
Governments and Central Banks are taking numerous steps to help stabilise global markets. Overnight four Eurozone countries banned short selling of financial stocks. Earlier in the week the European Central Bank said it would buy bonds from Italy and Spain. The US announced it will keep interest rates low until at least 2013. The French are fighting rumours of a downgrade to their AAA credit rating as they, along with Germany, look to put Europe’s debt issues in order. We hope the decisions they take are the right ones at the right time.
If we look at the average performance of all the IMA sectors over the last month many fixed interest, property and absolute returns funds are holding up relatively well. With this in mind we reiterate our statement in the last blog; when we construct client portfolios we have diversification in mind and therefore clients who hold a mix of asset classes should have experienced some respite over the last month.
Finally, we would simply say that clients should, wherever possible, look to ride out the current storm. That is not to say that markets could not still fall further and short term volatility is virtually certain.
With little change in fundamentals for some companies, yet drastic falls in their share prices, for those prepared to accept some potential short term volatility now could present a buy opportunity. When asked how he made his money, legendary investor Jim Rogers answered, “I sell euphoria and buy panic.”
Rest assured we are keeping a watchful eye over events and will be in touch if any steps need to be taken.
Piers Larcombe
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Efforts by Central banks have failed to calm the volatility in stocks and shares with stock markets around the world falling sharply this week reflecting the uncertainty out there. There are continued problems in the Eurozone, the looming possibility of a debt downgrade in the US and there is a marked slowdown in manufacturing in all four corners of the globe. These indicators all point to a slowdown in global growth, but this is nothing new and some perspective is in order. We were happy, for that part of your portfolio, to recommend equities a year ago which were then at today’s levels. We were also happy at the recent highs in April and there is little reason to feel differently today as fundamentals remain as they were, with a good proportion of companies reporting increased dividends and profits.
We urge all of our clients to remember they hold a mix of asset classes where some, such as fixed income funds, remain broadly unaffected amidst irrational sentiment driven behaviour.
History tells us that it is sentiment that drives markets in the short-term but fundamentals always prevail in the long-term and at Baigrie Davies a lot of time, effort and resources are committed to ensuring that client portfolios are well diversified across several asset classes and that the underlying funds are best of breed, proven long-term performers.
We appreciate that these are volatile, difficult times and if you would like to voice your concerns or would like to discuss your investments please do not hesitate to contact your adviser.
Harpreet Saroya
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Posted by @
08:00 PM, August 05
It is apreciated to have assurances such as you have offered when many of us feel ill equipped to understand what is going on. Thank you.
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