Financial Planning Update - Market Volatility

Nick Barker of Charlwood Leigh comments on the recent market volatility.

This time last week when I emailed you most global markets were in freefall and it appeared panic had set in. The FTSE 100 dropped below the 5000 mark for a short period of time.

Over the past 3 to 4 days markets have settled and the FTSE 100 has risen to 5358 at today’s date.

Here at Charlwood Leigh we are in constant touch with many fund managers and I have to say the vast majority of managers felt that the sell off in equities was little to do with the underlying value of companies but the lack of decisive action being taken by the Obama administration and European governments to address the massive deficits that have been built up over many years.

Many managers have been using their cash reserves to purchase equities during the course of last week, seeing it as a good buying opportunity in the long term. Anthony Bolton, one of the most successful fund managers in the industry, who ran the Fidelity Special Situations fund for many years and is now managing their China Investment Trust from Hong Kong, wrote in the Financial Times on August 12^th of his confidence in the returns that can be generated by investing in equities. A couple of comments in the article that I thought were interesting I have quoted below:

“With hindsight, I believe investors will see that this week’s movements will have presented one of the more attractive long-term entry points for equities.”

“In summary, I don’t see any of the normal warning signs that mark the end of a bull trend. It may seem strange (and perhaps foolhardy!) to be talking about a continuing bull market after the large falls of the past week but that is still my view – provided we see a recovery in market over the next few weeks.”

Anthony Bolton 12.8.11

I suspect the volatility will continue in the short term but do believe that currently equities offer good value for money, especially in light of the fact that it appears that interest rates are going to stay low for longer than was originally anticipated as per comments made by the Federal Reserve and the Bank of England.

In summary, understanding of course that there is always a risk of being invested in equity markets, if you are sitting on cash reserves that you can take a longer term view investment wise with, then my belief is that this really is potentially a terrific buying opportunity.