Member Article

Analysis of stock market is 'opportunist sound bites'

Recent turbulence in world equity markets being hailed as “the start of a long term bear market” or “an overdue correction”, are no more than wise-after-the-event opportunist sound bites, according to a UK firm of investment management experts.

Chinese growth figures and the removal of sanctions on Iran (which has led to a greater world supply of oil), have been the triggers for a wave of global stock market falls this month.

Isabel Howdle, investment manager, at Gale and Phillipson, said: “Looking first at China, there are always questions about the reliability of official Chinese growth figures. But these questions are no greater this year than last and looking into the mathematics of the situation does give a little more comfort.

“Growth in 2015 was starting from a higher base value – 7.3% higher than in 2014. Since growth in 2014 was 7.3, this means that 2015’s absolute growth (at 6.8% of 107.3) is also 7.3!

“Over the coming years, the percentage growth in China’s economy will inevitably fall. But the truth is that the Chinese economy continues to grow at a phenomenal rate and China continues to aid growth in the world economy. Moreover, as this benefits middle class Chinese consumers, the changing demand for imports to China could help drive wider world economic growth.”

Looking at the oil price, Isabel argues that, whilst the greater supply of oil from Iran’s re-entry to the global market adversely affects oil stocks, in the long term this is likely to be good news for the world economy. Lower fuel prices benefit long term economic growth and it is suggested that the readmission of another major economy to the global forum is also of long term benefit.

Isabel said: “Of course, we know that all of this doesn’t mean markets aren’t currently extremely volatile – clearly we have seen significant falls so far in 2016. Investors are nervous, and in the near term there is no reason to believe that volatility will reduce.”

In terms of advice to investors, Isabel added: “Overall, this current turbulence reinforces our long term view that it is very hard to get market timing right. It seems unlikely that now would be a good time to de-risk, unless you really have no further capacity for loss.

“Investors with a bullish view or a long term horizon may see current equity market prices as a buying opportunity. However, we believe investors are best served by having long term and stable asset allocations which reflect their attitude to risk and capacity for loss, and which are properly assessed and regularly updated.”

For more information, factsheets, guides and videos, visit the Gale and Phillipson resource library at www.galeandphillipson.co.uk/resources

This was posted in Bdaily's Members' News section by Gale and Phillipson .