The first three weeks of 2016 have been a difficult time in global stock markets, but in reality little has changed except perception.
John Chatfeild-Roberts, head of strategy, Jupiter Independent Funds Team, outlines some of the opportunities and risks in the current market environment, as well as the importance of patience when investing over the long term.
The start of the new year is of course a traditional time to take stock of the situation and make resolutions for the coming year.
Unfortunately what many investors resolved to do when they got back to their desks in January was “sell, sell, sell”.
The early weeks of 2016 have been a difficult time in global stock markets, with the UK market down 5.8%, the US down 6.6% and Europe down 7.4%.
So what changed? Well, in reality very little except perception.
Evidence of this can be seen by the market rise triggered by comments from Mario Draghi, president of the European Central Bank, that he may possibly reconsider current monetary policy and provide further stimulus to the eurozone economy.
If such comments can trigger sudden price moves it tells you that markets are acting more on feelings than facts.
At times like this I believe it is important to have patience .
The UK and US economies remain in relatively good shape, and although interest rates are generally expected to rise in both countries during 2016, Mark Carney, governor of the Bank of England, has recently sought to cool the market’s expectations of an imminent interest rate rise in the UK.
In any case, our opinion is that interest rates on both sides of the Atlantic will remain relatively low for the foreseeable future and regardless of the exact timing any rises will be small and gradual.
The low price of oil and other commodities is also a natural correcting mechanism for the global economy.