Given the extreme volatility in the markets at the moment, I thought I should give you some background on why this is happening and what we think will happen next. .
It’s all been driven by China which, after government intervention to artificially support the stock market two weeks ago, unexpectedly decided not to continue to intervene at the weekend. On Friday the US stockmarket, S&P 500, fell 3.19%.
I feel that the UK market response this week has been a bit reactionary, given that it was unrealistic to expect the Chinese to continue to support their domestic market at all cost. The market reaction would indicate that investors were obviously expecting just such support. When it didn’t materialise at the weekend, investors started panic selling with the Nikkei falling 4.61%. This week the FTSE 100 has fallen over 5% and the German DAX is down 5.53% and we expect further to come.
It is highly frustrating that the sell-off has been completely indiscriminate. We can perhaps understand why miners and other commodities related stocks have fallen so far (Glencore has fallen 11.1% and currently BHP is down 8.8%) but it is not rational that domestic-focused companies such as house-builders with no exposure to China whatsoever are tarred with the same brush. Seemingly retail and short-term investors are panic selling at any price.
We believe that it is sensible to hold our nerve until there is a clear sign that this developed markets reaction to an emerging market crisis is justified. At present we do not see that justification and feel that whilst there may be more to come, it wouldn’t take much to see an aggressive rebound in equity prices at very short notice.
Please rest assured that we are keeping a very close eye on developments this week alongside taking advise from market analysts and we are primed to take action if we see this knee-jerk reaction turn into a longer-term problem for our core markets.
Mark Incledon C.E.O The Citimark Partnership Limited
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