Don’t Panic! The Black Monday storm is clearing

by Paul Northmore, Managing Director

This week has been a rollercoaster of a ride for the markets with Monday 24th August being named ‘Black Monday’.

The tumble in Chinese equities as a result of a slowdown in the economy has taken its toll on global equity and bond markets with the Chinese Shanghai Composite Index falling over 8%.

This was followed by European and then US market falls, the FTSE 100 finished 4.7% lower at 5,898.87 and the S&P down 3.9%.

The slowdown in Chinaand the devaluation of its currency have spooked markets. We have seen a significant fall in commodity prices on the back of this as well as significant falls in stocks with exposure to China. In addition we are facing further falls in the oil price which is having an adverse effect on oil and gas companies. Some of this we have seen first hand at the fuel pumps.

The reason for this is the unquantifiable projection for growth in China, the second largest economy in the world.

Within the FTSE 100 Index the Oil & Gas and Mining sectors are 2 of the 5 biggest sectors, and this does weigh negatively on the index.

But this shows how the markets can react to news: on Tuesday 25th August the markets bounced back with the FTSE 100 up 2.9% at time of writing.

What happens now?

The next stage will be to see how quickly the People’s Bank of China reacts to the turmoil.

Overnight it has injected 150 billion Yuan into the financial system in an attempt to stabilise things, and this morning announced an interest rate cut.

The reaction from central banks in both the UK and US is something that is likely to provide further clarity to equity markets. Talk has turned from The Federal Reserve raising interest rates in September, to the possibility of further easing to boost their economy in view of China.  Although a rate cut is very unlikely, rate rises look set to be put back to 2016.

How we can help

Due to the diversity of investments we recommend and the partners we use, a lot of our clients would not have been on the receiving end of the market downturn.

We expect things to calm down in due course, resulting in the markets creeping back up. However please do contact us if you would like further information about your investments.

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