Market Commentary - Autumn 2008 - 2008-10-10
In September (and indeed the whole of quarter 3), equity markets were showing significant falls in value (the headline FTSE-100 fell -12.86% in the month). However, whilst these falls were sizeable, they were merely a prelude to the much more dramatic events of the beginning of October. At the time of writing (10 October), the last 10 days have seen further falls of nearly 20% in most major global equity markets, bringing the headline FTSE-100 index below 4,000 points for the first time since the bottom of the bear market in the spring of 2003.
The sheer speed and severity in the falls in markets helps highlight the fear and panic that many investors had over the potential meltdown in the global banking system as a result of the credit crunch. Central banks and Governments worldwide have since taken drastic action in order to attempt to breathe live into the banking system by helping recapitalise major banks at a cost several hundred billions of pounds. Whilst this action will almost certainly not help avert a recession, it may be sufficient to stop the potential catastrophe of complete failure in the banking system which was realistically threatening.
The questions that now remain for investors are: Will the measures work? How quickly will liquidity return to the system? How quickly will this feed through to businesses / consumers and will confidence gradually be restored? Clearly markets have tumbled due to the expectation of a global recession (which seems inevitable in areas) and the panic surrounding the freeze in the banking system (which may well have been avoided, although it is still very early days).
We feel that whilst an economic recovery may be someway off, investment markets (which move a good deal ahead of the economy) are starting to present real value for long-term investors. Investors already exposed to equities must try to at least hold their existing positions in order to avoid selling at such low levels, and await recovery. The more opportunistic investor, who has liquidity and an appetite for adventure, may wish to consider gradually committing more funds to equities in order to take advantage of such low valuations.
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.
