13th June 2013
Hargreaves Lansdown is telling investors to embrace the sell-off in shares, concentrate on long goals if they are invested, and use it to look for opportunities if they missed the rally. The broker notes that global stock markets have continued to fall as the World Bank cuts its growth forecast following Ben Bernanke’s suggestions the Federal Reserve may reduce the amount of quantitative easing sooner rather than later. “This has become a typical reaction that we have seen time and again in recent years,” it says.
The note adds: “Previous suggestions that quantitative easing will stop has caused markets to fall in the past, only for central banks to come out and reassure investors. Following Ben Bernanke’s statement stock markets have moved from a slight fall towards a correction (a fall of 10% or more from the recent peak) and in the case of Japan some are suggesting it has entered bear market territory with a fall of over 20%.”
But Hargreaves lists some reasons for perspective. It points out that even after the recent falls the Nikkei 225 is still up 20.65% in 2013, whilst the FTSE 100 is up 9.2% this year.
“The US continues to pump $85bn a month into the US economy. It notes that the Federal Reserve has linked their quantitative easing programme to the unemployment rate and have stated they will only consider stopping it when unemployment falls to 6.5%. US unemployment had been falling in recent months but actually rose in May to 7.6%,” it says.
The note adds that the effects of Japanese quantitative easing programme announced in March, which will pump 7 trillion Yen into the Japanese market, have yet to been seen. The Japanese are electronically printing $70bn a month and using it to buy bonds and equities. Whilst the sum is slightly less than the US, Japan’s economy is a third of the size. Having only just started this programme it is still too early to fully see its effects.
Adrian Lowcock, senior investment manager at Hargreaves Lansdown says: “Too often investors place too much importance on the most recent piece of information with all other facts being ignored. We shouldn’t ignore the actions already taken, there has been a clearly orchestrated and concerted effort from the world’s major central banks to raise asset prices. I for one would not take a bet against the combined actions of Federal Reserve, Bank of Japan and Bank of England. Investors should focus on their long term goals and not get carried away by short term falls in the markets. This recent fall gives investor who missed the market rally at the start of the year a second chance to invest and benefit from the long term growth in equities.
“The best fund managers are those who are able to protect investors money when markets fall, putting them in prime position to benefit when stock markets do recover. Many are using the recent weakness as an opportunity to invest in their favourite companies.”