The S&P 500 is currently trading at a few percentage points away from its all-time high and over 44 percent above the pre financial crisis of 2007/2008. Despite European indices not performing well this year the German DAX is still trading 21 percent below last year’s peak; however, it is still above 35 percent 2007/2008 levels.
For the long term investor the current market turmoil would represent a small dip in capital gains. However, concern is understandable for investors experiencing equity markets only recently. It is disheartening to observe your hard earned savings become smaller and smaller.
First, I assume that I am not addressing gamblers in the market. Putting thousands on some penny stock, diving behind the latest fad stock or following tips from the latest blog post do not count as sensible investing.
Second, I expect markets to remain turbulent in the short-term, probably we still have to observe a bottom in European Equities. There are some risks in the short-term that are worth being aware of; mainly Brexit and a possible global economic slowdown.
Holders of ‘valuable’ equities are placed in a good position ‘at whatever price they were purchased’. By valuable I mean large cap equities in well managed companies. By ‘at whatever price’ I mean that over the long-term I expect prices to be well above current levels.
Finally, I am including a major market crashes from the past few years as a reminder that very often short-term concerns are not the end of the world for the careful long-term investor.
June 2015 - January 2016 Chinese stock market turbulence
The Chinese stock market lost a third of its value on the Shanghai Stock Exchange within a month. The sell-off started on the 12th of June 2015. In the year leading to the crash, encouraged by state supported media, the stock market was inflated in to a bubble through huge investments using borrowed money. On the 24th of August 2015 the index fell 8.48 percent markings its largest fall since 2007.
By the end of 2015 the market seemed on its way to recovery. However, on the 4th of January trading was halted as Chinese stock plunged 7 percent. Anyone optimism quickly dissipated and the trade curb intensified investor’s concerns.
The sell-off on the Chinese stock market led to a global sell-off in equities. By mid-February the S&P 500 Index had lost over 13 percent from the start of the year.
August 2011 – European Sovereign Debt crisis
Eurozone member states, Greece, Portugal, Ireland, Spain and Cyprus were unable to repay or refinance their government debt to bail our over-indebted banks under their national supervision without assistance for other Eurozone countries, the ECB and the IMF.
Fears of contagion from the European Sovereign Debt crisis to Italy, as well as concerns over France’s AAA rating and the United States downgrade for AAA to AA+ by Standard & Poor’s.
In this environment the French CAC40 fell by 20 percent in two weeks, the Italian FTSE MIB fell 25 percent, the German DAX crashed over 30 percent.
This article was issued by Antoine Briffa, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.