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Market Turbulence returns with a bang

Market Turbulence returns with a bang

2010 was a good year for investors, 2011 has been a frantic one.

After a catastrophic natural disaster in Japan, a prolonged and worrying political impasse over US and European debt has driven markets to their lowest level in more than 2 years. Fear and panic has swept through financial markets through the summer months, particularly in the banking sector where share prices have been decimated. With social uprising a feature in our own country as well as many around the world, it is understandable that people feel inclined to run for cover (almost literally) at this time.

We are understandably concerned about the debt issues of not just Europe, but of the world's largest economy, the US. The problem for many policy makers and commentators is that the solution is difficult to construct and almost impossible to agree upon. A feature since the financial crisis of 2008 has been the weakening of individual Governments and the political bickering over decision making. This was very evident in the drawn out disagreements regarding the US debt ceiling, which proved very damaging to share prices worldwide as investors dumped risk assets in favour of safety. Markets hate delayed decisions and uncertainty and with policies taking longer to agree upon, shares are sold. Unsurprisingly, gilt yields continue to fall and gold continues to rise.

It is impossible to determine how long it will take for confidence to return and exactly what route the leaders throughout Europe and the US will take to navigate through the debt problems, but we see several reasons to be optimistic:

Companies are far less heavily leveraged than in 2008, many have healthy cash balances

It looks unlikely that interest rates will increase any time soon, making the alternatives to cash attractive

Shares are far cheaper than they have been for a very long time - distinguishing between 'cheap' and 'good value', is the challenge

Although markets have fallen, they do not appear to be as panicked as 2008, despite the very well documented global economic issues

We do not wish to make predictions, preferring to review our clients overall position and take a sensible, short, medium and long term outlook. Although we feel it is essential that clients have healthy amounts in available cash, we also feel that medium and long term investment opportunities are presenting themselves. Gauging the level of risk each individual is prepared to accept is a very important part of our job, and we are keen to see new and existing clients regularly to ensure that our goals are aligned.

When markets are volatile, sitting down and making the right decision can be very lucrative, whereas making snap decisions is often very costly. We remain cautiously optimistic and feel that over the longer term, returns from this point could be very healthy.

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*Please note, the value of your investments can go down as well as up and future returns cannot be guaranteed. The views expressed above are for information only and should not be treated as advice. If you wish to receive Independent Financial Advice, please contact us to arrange an appointment