As we move into a big week for global markets, here are some reasons to be optimistic from deVere Group CEO and founder Nigel Green. He reckons that despite “volatility, uncertainty and headwinds,” investors should stay cheerful.
The comments come after China’s main stock market plummeted 5.5 per cent on Friday (its biggest drop since the August crash) and as other indices, such as the Hang Sang, felt the negative knock-on effect. Then there’s the ongoing question mark over the Federal Reserve’s imminent rate rise decision and intensifying geopolitical factors which, together with other issues, are influencing investors’ actions.
Green: “Investors are aware that there is volatility, uncertainty and headwinds, causing markets to continue to be unsettled.
“Main triggers include the Chinese authorities’ efforts to eliminate what they deem to be suspicious trading practices prompting a huge slide and causing ripples around the world, bond yields coming under pressure, the Federal Reserve’s likely imminent rate rise, the commodities price crash, the slowdown in China and other emerging markets, and the concerning political and security issues facing the world.
“This turbulence is likely to continue and perhaps intensify this week, an important week, and it can be expected to remain for the rest of the year.
“This week is a critical week not least because on Monday, the IMF is expected to grant China’s Yuan reserve currency status; on Thursday, the ECB meets and its president Mario Draghi has hinted that monetary policy will be eased further; on Friday, OPEC meets in Vienna to confirm whether it will maintain current supply despite weak oil prices; and the U.S. jobs report is published – this is the last piece of data for the Fed to consider before its announcement on a rate rise.”
“Despite this unsettled period, I would urge investors to be optimistic. Indeed, it does typically pay to be optimistic in the markets and right now there are two key reasons to be cheerful.
“First, history teaches us that volatility creates important buying opportunities. And where we are now is no exception.
“On the whole, it has been a relatively good year for investors, with many indices including the CAC40, the DAX, the STOXX 50, and the S&P 500, amongst others, all up on year-to-date comparisons. And while the FTSE hasn’t kept up to the same degree, it is still up by 80 per cent on where it was when it was on the floor in the spring of 2009.
“Yet despite this, in several sectors and many shares pessimism is keeping a stranglehold on prices, creating excessively low valuations and, therefore, major opportunities for long-term investors.
“And second, it has never been easier and cheaper to invest globally. Investing across geographical regions is one of the cornerstones of a well-diversified portfolio.
“Those with a well-diversified portfolio are best-placed to mitigate risk in times of market turbulence and best-placed to take advantage of the opportunities.
“With the current market environment, I would argue that now is the time for many investors to think about taking a more global perspective.
“It is a myth that investing internationally is riskier. Indeed, the greater diversification that is secured by going global, the greater the reduction of overall portfolio risk.
“It is also a misconception that international investment options are exclusively the domain of sophisticated investors. This is not true. There are many well-managed retail funds that offer global stock market exposure, using a wide variety of approaches.
“Savvy investors would be wise to embrace the headlines and events, especially those of the next week, that can create uncertainty as they also create important buying opportunities – at home and internationally.”