Martin Hawes looks at some of the factors frightening the markets at the moment and offers some light at the end of the tunnel.

 

There’s a lot going on at the moment. Markets have been in turmoil, predictions for economies look dire, and following COVID-19, there seems little chance of returning to business as usual anytime soon. Investors are forgiven for the fear they might be feeling.

 

In fact, right now, fear is the wrong emotion – these are excellent times for investors who have some cash, and a great opportunity, whether investing yourself or through managed funds. There is an old investment saying: buy in gloom, sell in boom. Now seems a gloomy enough time to be thinking about taking the plunge.

 

This is the fifth big slump that I have lived and invested through. The first one (in 1987) was the worst and caused me the most grief. Since then, I have become more and more relaxed during market turmoil; experience now tells me that falling markets represent opportunities to buy cheaply.

 

In the lead-up to Christmas, there are few bargains. But instead, this market is like the Boxing Day sales – that is, the time to buy cheaply.

 

And yet, everywhere I go, I find people who believe there is too much risk and that this is not a good time to invest. These people hoard their cash in the bank while they wait for “better” times. Of course, the problem with this waiting strategy is that when risk abates, markets will move very quickly, leaving those waiting stranded.

As well as these short-term factors, there are two long-term things that may, in time, cause market volatility. These are:

 

1. Climate change and the costs associated with it. Although the steps taken to mitigate climate change will provide winners and losers, the uncertainty associated with it will likely provide its own volatility.

 

2. China rising. China’s rise seems unlikely to intensify greatly soon, but there does seem to be an inevitability about more conflict eventually (verbal conflict at least).

 

Of course, the world is not restricted to only negative market influencers. There are some very positive things for share markets that will feed the rebound when it comes:

 

1. Very high savings rates – there is a great deal of cash from households and corporates available to come back into equity markets when the time is right.

 

2. Full employment – those who have lost their job have plenty of options for a new one, and unemployment seems unlikely to rise a lot in the near future.

 

3. There is no standout investment type at the moment – all investments are performing poorly, and there is nothing that is attractive. When risk abates, a lot of money will go into share markets.

 

4. Business profits are holding up (so far, at least). This may change, but at the current levels of corporate profits, shares do not look very expensive.

 

5. There is still a great deal of invention and innovation – in technology especially, there are plenty of opportunities.