Market Commentary - Spring 2008 - 2008-04-01
Our previous quarterly commentary alluded to the fact that we anticipated an increase in the levels of stock market volatility in the short term, and this certainly proved to be the case at the start of the year. January saw falls of between 5% – 10% across major markets, with the FTSE 100 retreating 8.9% on a total return basis during the month. Cash and government bonds provided a safe hedge against the falls in the equity markets. Markets calmed in February, with major indices posting slight positive returns, however further setbacks, albeit not of the scale of January, occurred again in March. This resulted in the sizeable negative total returns for the quarter, as shown above, for most markets.
We expect volatility to continue in the short to medium term, as markets come to terms with the fall out of the global credit crunch. This phenomenon, which has its roots in the USA has caused widespread disruption to global credit and money markets. The knock-on effects are now in turn feeding through to the UK consumer, with mortgage and other borrowing costs increasing and availability decreasing. As a consequence, the housing market is showing signs of the cooling of recent months turning into falls. The question for investors is how much further these issues have to develop. It is reassuring to note the level of commitment that governments and central banks worldwide seem to have in tackling these issues and that they are prepared to take appropriate action. Also, it is worth bearing in mind that the current levels of investment markets will of course have already priced-in some degree of future expectations. Lastly, it is worth reiterating the mantra “time in the market, not market timing”, and to stress that by selling assets at low levels, you are simply crystallising losses and minimising future recovery potential.
1 April 2008
Opinions expressed represent the views of Stan Gaskin Ltd at the time of writing, They are subject to change and should not be interpreted as specific advice. Please discuss your personal circumstances with an adviser prior to making any investment decision.
