Red Lights Spell Danger For Markets And Investors

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Written By Mahmoud Sarvari

Stock exchanges around the world have become red light areas as trading screens have pulsated with falling prices.

Markets across the globe have slumped – including a 3% loss on the FTSE100 in London.

The collapse is blamed on a succession of financial reports containing poor data which has led many analysts to reconsider their outlook for the global economy.

US President Donald Trump has not helped by calling for even more trade tariffs, this time he has turned his attention to a ‘bad deal’ with the European Union and the UK, slapping a 25% penalty on aircraft aimed at forcing governments to stop subsidising Airbus.

Sticking plaster policies hide symptoms

“September was a very good month for equity markets with the FTSE100 and the S&P 500 both up by roughly 5% since the lows seen in the summer. Several factors have driven this, including a calming down of the trade spat between the US and China while economists took the view that the global economic slowdown may not be as aggressive as feared earlier on,” said Helal Miah, Investment Research Analyst at The Share Centre.

“Central banks have also rescued markets with interest rate cuts by the Federal Reserve and the European Central Bank with the rhetoric of further monetary support.

“However, despite the September rally, the issues for the global economy have not gone away. The trade war with China is not resolved and will more than likely continue if Trump is in office. Tensions between Saudi Arabia and Iran are at the most elevated levels for many years. Let alone the fact that Brexit looks unlikely to be resolved by the end of this month.”

Advice for investors

So where do investors go from here?

“Most probably nowhere. Markets go through these periods all the time,” explained Miah.

“We had the pull-back late last year, and other more moderate pull-backs in May and August this year, all of which the market made a recovery from, this should just be another mini correction. If you have structured your portfolio well, sitting tight and doing nothing should leave you comfortable because it should ride out these short term moves.

“For those who have cash on the side-lines, it may be time to put that to work now for better valuations and an alternative to paltry interest income.” Our in-house research team have preferred UK, European and Japanese equities prior to this risk-off period and now see even better value in these regions over the US.”