Financial markets will be volatile until the end of the year, but investors should avoid a ‘doomsday prepper’ mindset, warns the chief executive of one of the world’s largest independent financial advisory organisations.
deVere CEO Nigel Green’s comments come as share and oil prices around the world slide against a backdrop of global economic woes.
Mr Green affirms: “There are many, and legitimate, contributing factors to the global economic slowdown narrative. These include China-related issues, such as the recent devaluation of its currency, the stock market’s boom and bust in recent months, and slower GDP growth. Elsewhere, weaker commodity prices (reflecting weaker than expected demand from China), is causing problems for commodity-exporting emerging markets. The growing anticipation of rising UK and U.S. interest rates adds to investor uncertainty, particularly given high valuations on many of the major stock and bond markets.
“Investors are spooked and stock markets are tumbling in response.”
He continues: “I believe that this volatility is likely to remain with us, at least until the end of the year. By then we will have a clearer view as to the risk of a China economic ‘hard landing’, and the degree to which capital markets are prepared to absorb higher U.S. interest rates.
“But for most long term investors, fears of a near-term financial apocalypse are overdone. They should concentrate instead on investing for the longer-term and ensuring that their portfolios are well diversified –geographically and by different asset classes. This of course includes maintaining a healthy exposure towards equities, which financial history shows easily outperform bonds and cash over the type of long investment periods that are typical of our clients.
“Failure to diversify a portfolio is widely regarded as one of the most common investment pitfalls – and history teaches us that diversification in these times of rising market volatility is even more essential.”
Mr Green adds: "Besides, China may yet be a positive theme for investors next year.
“China’s devaluation will make their exports cheaper and this will help its fragile economy recover. Also, as I have seen on recent trips to China, consumption in China’s powerhouse cities is buoyant, which is good news for global businesses wanting to take advantage.
“Other causes for optimism include that the Euro is undervalued and this will help boost a Eurozone recovery; I believe any U.S. rate rise will be later than most expect and smaller; and oil prices are very low and, again, this will contribute to more global growth.
“But until this good news starts to challenge the current market nervousness, investors are advised to sit still and ensure their portfolios are well-diversified.”