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ITS JUST A LOT OF NOISE

Posted by siteadmin on Monday 14th of March 2016.

There has been a lot of negative press lately about the state of the UK and the world economies.  One the advantages of being an Independent Financial Adviser is that I get invited to a selection of seminars by international fund managers.  Yes, they talk about various funds that they wish to promote, but they also give us their view and perspective on the world markets.  They all say, that the world is definitely not in for another recession.  The general view is that what we are experiencing in the stock markets is a re-pricing of value.

China is going through a change, from being the world’s exporter, to now being a home market producer for its own people. The western world doesn’t want as much of Chinese manufactured goods.  This has resulted in a slight slow-down of the Chinese economy.  The Chinese Government is trying to steer the country through these changes and this has affected their stock markets and their currency. True, to some degree this has similarly affected world stock markets, but this is now considered to have been an over-reaction.  As one economist put it.  “It’s just a lot of noise”  

The price of world minerals, such as iron ore, and copper has similarly fallen as a result of the slow- down in the Chinese economy.  They didn’t need as much minerals as they were producing less. This has affected the profits and hence the share price of large mining companies such as BHP Billiton, Rio Tinto and Anglo American.  Subsequently the FTSE 100 has fallen.

The price of oil 2 years ago was $100 a barrel. The price has now fallen down to less than $30 a barrel over the past six months.   The fall in the price of crude oil is due to the producers such as Saudi Arabia, producing too much crude oil and pushing the price down.   Large oil companies like Shell and BP are making less profits, so their share price in the stock markets have fallen.  Again the FTSE100 has fallen.

The FTSE100 index is made up of the top 100 UK companies such as oil and mineral companies whose share prices have fallen, the FTSE 100 Index has fallen over the past 6 months.  This has affected to some degree the value of everyone’s pensions and ISA investments.

So should we be worried by the recent fall in stock markets?   Where ever there is an advantage, there is a disadvantage, and come to that, the other way around.

The Chinese shares have stopped going down, and now starting to go up again. This has had a positive effect on world stock markets and they have all now started to recover.

The price of oil, according to the (IEA) has bottomed and has now increased to and steadied at $40 a barrel. The share price of the major oil companies has started to recover and this has improved the value of pensions and ISA investments.

The price of minerals have stopped going down, stabilised and have gone up over the past couple of weeks. Again, this has increased share price of large mineral companies and had a positive value increase on all our investments.

Lower crude oil prices has resulted in cheaper petrol at the pumps to less than £1 a litre.  This is a considerable saving to both companies and individuals.   This means people have more money to spend, and companies make savings on their fuel bills and hence improve their profits.   This in turn improves the state of the economy, share prices go up and improve our pensions and ISA investments.

Markets go down when more people sell than those buying stocks. This is what has been happening over the past 4 months. We have now reached the stage where more people are buying than selling and this has stabilised the fall in the markets and they are now starting to rise.

Another interesting factor is that the FTSE 100 which everyone reports on and is used to measure the performance of investments, is only made up of the 100 largest UK companies. The remainder of the economy is made up of hundreds of smaller companies, which have not been affected by the slow-down in the Chinese economy, the fall in the price of crude oil or the fall in the prices of minerals. Throughout they have carried on unaffected by all the recent noise.

To many observers, the recent dip in the markets, is now seen as just that, a revaluation, a blip and to many with the courage and foresight, a wonderful buying opportunity.

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