If you already hold equities (shares, bonds, stakes etc.) then be prepared to see a downward turn in your portfolio this month…China´s position has seen ALL markets worldwide follow a downward trend, but fear not, and DO NOT PANIC, for many this could prove to be a blessing in disguise – withdrawing funds is not the answer.
Commodity producing countries such as Brazil are certainly suffering because of low prices but many other parts of the world are better off, seeing lower input costs in manufacturing. Lower oil prices are also resulting in lower diesel and petrol prices, boosting disposable incomes for consumers. It is widely believed that the US will be the first major economy to raise interest rates with much commentary centered around September as the likely starting point. However, the recent further fall in the oil price suggests that inflation levels will remain subdued for the foreseeable future. Nevertheless, even if rates were to rise next month, it is likely to be a token increase, with subsequent movements very slight indeed. In the UK, inflation is also conspicuous by its absence and any moves seem unlikely until well into next year.
So what does all this mean for YOU? Share prices have suffered a very sharp correction in the last few weeks, albeit after many stock markets reached all-time highs in the Spring. Valuations are around the average for the last twenty years, so the current weakness offers a great entry point. Moreover, dividend yields remain well above government bond yields, underlining the income attractions of equities. Low commodity prices are likely to keep the lid on inflationary pressures, removing the need to raise interest rates. This suggests that bond yields are likely to remain low for some time. Therefore, while stock markets may remain volatile over the coming months, investors shouldn´t be afraid of taking advantage of the recent dip in prices to add to positions where they can.
In layman´s terms, if you have cash in the bank with an expected low yield, and you are not in any rush to utilise the funds, then there has never been a better time to consider investing medium to long term in the equities markets, with products available that have potential to achieve returns in excess of bank interest rates.
This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.
The later part of the 20th century saw its fair share of financial bubbles. There was the property bubble, stock market bubbles, and then the dot com bubble of 2000, just to name a few. In each instance, people paid exorbitant amounts for things that shouldn’t have been worth anything like the going price. But this is nothing new – look back at the Dutch in the 17th century when already pricey tulip bulbs experienced a twentyfold price explosion in just a single month.