Crash Time?

There cannot be a crisis next week, my schedule is already full (Henry Kissinger)

So it’s half time in 2017 as the month of June passes us by and we head into the second half. Although we saw a little pullback in a couple of the major indices, most notably the FTSE, 2017 remains very positive and hopefully your portfolios are reflecting this. The strengthening of Sterling is directly related to the FTSE decline. Its now been over a year since Brexit which caused the value of the Pound to fall so dramatically. During that period the FTSE in USD terms has fallen by 2.5%, yet the market is up 15%, a difference of 17.5%. This reflects the impact of the foreign revenue streams on the big player listed in the UK.

The rest of the stats look like this….
                                                     June                                YTD

Dow J                                          +1.6%                             +8.0%
Nasdaq                                        -0.9%                            +14.1%
FTSE                                           -2.8%                            +2.4%
Dax                                              -2.3%                            +7.4%
Nikkei                                           +2.0%                            +4.8%
SSE                                              +2.4%                            +2.9%

And on the foreign exchange, the USD continued its steady decline against most currencies…
                                                      May                              YTD
GBP                                              -2.3%                            -6.7%
EUR                                              1.6%                            -8.6%
JPY                                               +1.4%                           -4.1%
CNY                                              -0.5%                            -2.5%
AUD                                              -3.3%                            -6.8%

I continue to remain positive and bullish (cynics may argue thats my job..) , but as always you are going to have people with differing opinions. What scares clients most is a “market crash”…for obvious reasons

I am always being quizzed about when i think the next crash is happening, often people citing cyclical movements with the thinking behind being we are due one given we have had over eight years of growth.

The Financial crisis of September 2008, with the markets bottoming out in March 2009 is of course what is fresh in most people’s mind. Other crisis’ such as the dot com bubble of March 2000, the Asian currency crisis (which occurred exactly 20 years ago today) and for some of our more mature investors, Black Monday in October 1987 are also still discussed.

Investing in the stock market is about the long game, lets look at ten years. Despite the dreadful losses that happened in the 2007 / 2008 crisis, if you had held your money in a Dow Jones tracker, you would have still averaged 5.9% per annum. This is a purely passive play and also meant you hit the absolute bottom when the market did. In reality as long as your assets were being properly managed you should be looking at an extra 3% on dividends (whether reinvested or not ) and at least 2% saving in well managed sell offs. Therefore a 10% annual return in the last decade was easily in reach, despite the biggest market falls since the Great depression..

Owning a DJ tracker from March 1987 to August 1997 which would have encompassed both Black Monday and the Asian crisis, would have seen your money grow by 258%….again get this managed and anything less than 30% per annum would not have been acceptable (granted there were other factors such as high interest rates and inflation during this time unlike where we are today)

So whilst nobody likes to see the value of their hard earned cash ever diminish, where else can you seek ou capital growth such as above? And despite all that I do not believe a crash is happening.

We live in a very different world now even from 2007/2008. A much more globalised world where people living in less developed countries are more of a factor in our consumer driven world. 

After all it is the consumer that drives company’s growth, more consumers use a product, the company that sells that product grows…simple. This is illustrated in technology, a sector which is a million miles away from the one which collapsed in 2000. In 2000 everything was speculation about the potential for growth, now the growth in these tech giants is obvious to see…

Amazon now collects 60c in every dollar of online shopping, Apple has more cash than the United Kingdom as a whole (Over US$250 billion) and in the last 12 months Facebook has gained 322 million users. That is the population of Russia, Germany, France, Holland and Belgium combined….clearly this illustrates that these consumers are therefore coming from more developing markets.

As more countries have an impact on the world economy as a whole, previous crisis which have been triggered in the US are less likely to impact globally. This also proves that having the correct diversification is key to owning a successful portfolio…

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