Experiencing deja vu?
What do the dates Feb 1998, Jun 1998, Nov 1998, Apr 2001,Jan 2006, Jun 2008, Nov 2010 and Jun 2011 all have in common? Answer...the FTSE100 was at 5,770 at some point in all of these months! More than 13 years of sideways action. How much longer can it last and what should investors do about it?
Well it could easily last a lot longer and I think most serious equity analysts would have to agree.
Here a few reasons why:
- Investor sentiment is still very raw after the losses of 2008/09 and in a world with ever greater volumes of speculative equity investors, i.e. those not locked in for the long term but free to switch in and out, volatility levels of the last 10 years look set to continue.
- There are no obvious big drivers of higher share values, especially true if Governments in the US and Europe are finding it politically more difficult run quantitative easing programmes.
- Whilst equities have cheapened significantly from the heights of 2000 valuation levels they are still only averagely valued compared to historical valuations, they are no longer cheap.
- There are signs that global GDP is slowing again in the US, UK and now perhaps in China.
- US house prices are still falling with more than25% of all US house owners now in negative equity and energy prices stubbornly high putting consumers under ever increasing pressure to pay down debt and spend on basic living.
- Levels of Government debt in the US and Europe and the impact on public spending and taxation that trying to get these debt levels under control will have.
There are of course just as many bullish arguments, there always are, not least the record profits just reported by US companies. But my point is there are scenarios that could lead to level markets for another 10 years, just as easily as higher markets or lower markets. They won't be level along the way that's for sure as there is a whole industry out there with a big incentive to create movement and buy and sell orders, these market participants are always winners.
So is an index that has shown no long term upward trend for more than a decade and fallen by more than 40% twice in the last 10 years the best place for investors to be focusing the majority of their savings? And if they don't buy UK equity centric funds and investment strategies what should they buy?
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