After a heart-stopping opening to 2016, markets appear to have got their breath back. At time of writing the FTSE 100 is actually 2% higher than at the start of the year, something few could have imagined during January’s turmoil, when the end of the world seemed nigh.
A barrel of Brent crude is over $45, up two thirds on January’s low of $27. Last year’s commodity stock losers Anglo American and Glencore have soared as fast as they crashed, rising an incredible 200% and 100% respectively over the last three months. This is sweet vindication for those of us who were urging investors to resist the temptation to sell during the market “meltdown”. Crystallising your losses in the middle of a rout is never a good idea, particularly since you are locked out of any subsequent recovery.
Unfortunately, many investors will have learned this lesson the hard way once again, judging by the high level of fund outflows at the start of the year, according to Investment Association figures. Net retail outflows totalled £463 million in January and another £399 million in February, while institutional outflows hit £889 million in January before turning marginally positive in February.
An increasingly dovish tone from the US Federal Reserve helped inspire the turnaround. Clearly, the world isn’t ready for higher dollar borrowing costs yet.
Chinese stimulus, an oil price recovery and the sheer weight of bargains thrown up by the emerging market and commodity collapse all boosted sentiment.
Markets are now looking for reasons to climb higher, but this seems in short supply right now.
After recent excitement, investors are waking up to the fact that the structural problems of the global economy still haven’t been resolved: the world is awash with debt, the European single currency isn’t working and Western, Chinese and Japanese demographics are verging on disastrous.
The forthcoming Brexit referendum on the 23rd of June will throw another spanner in the works, should Britain vote to leave. The Greek sovereign debt crisis could easily flare up as well. In recent years markets been markedly seasonal, with investors enduring a long, wet summer only for the sun to shine in the final months of the year. It isn’t hard to see that happening again.
If that does happen, this IFA will know what to do. He will remind Clients how quickly markets recovered from January’s troubles, and how this underlines the benefits of staying calm and buying when markets fall. Anybody who dived into the FTSE 100 when it hit 5537 in early February will be sitting on a 15% gain today.
Just to help you all with investment trends right now…….