Recent market sell-offs

Stock Exchange web sitesMarkets may have regained a degree of equilibrium since what has been dubbed ‘Black Monday’, but sells-off of the magnitude seen since mid-August are undoubtedly unnerving. We know that investments are for the longer term, but it is still unpleasant to see significant drops in value over such a short period.

As ever with these periods of market dislocation, the question is whether there is genuinely something to worry about or if it is just a temporary blip.

In the case of China, we may simply be seeing an unwinding of a stockmarket 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, but this was already widely known and plenty of market-watchers had suggested the Chinese economy needed to slow.

There is an alternative view, which is that China is on the brink of collapse, laid low by the weight of its internal debts and a speculative property bubble. It is argued that policymakers’ ham-fisted intervention in markets have revealed how scared 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 routs 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 the upturns. August also tends to be a bad time 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.

We are always available to discuss any queries or concerns, so just call or drop us an e-mail.

The value of your investment can go down as well as up and you may not get back as much as you originally invested.

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