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Market View

Market View: February 

It was a foul January. The world lost the talents of Bowie, Lemmy and Rickman, the weather stayed wet and miserable, and by the 20th day the headlines called it the ‘The Worst Month Ever for Markets’. The FTSE 100 gave up 9.1% in 2016’s first twenty days; keep losing money at that rate and we’d be back in the Stone Age by August.

But the direction reversed, and by month-end the FTSE’s losses were only 2.48%. Still bad, still the worst kick-off to a year since 2009, but not, in the end, a disaster.

And although share prices were down, UK government bonds, often overshadowed by the more exciting parts of the market, gained nearly 4% in January, while corporate bonds were broadly flat.

The major themes of late 2015 continued into January: slowing Chinese economic growth, low oil prices, and uncertainty over the right path for major interest rates all remained in the mix. The last one presents a challenge: how can it be correct to increase interest rates when inflation is nowhere to be seen and economies are slowing? And yet, how can it be right to keep them at these ‘emergency’ levels when unemployment continues to fall and consumer spending is strong? This question - in one form or another - is being asked right now in the central banks of most developed nations; the answers they come up with will affect us all.

Oil prices still hover around $30 a barrel. This is bad news in the short term, because the oil price feeds directly into the revenues of huge firms, such as Shell (Royal Dutch Shell PLC, London) who depend on it directly and make up a big chunk of the FTSE. But a falling oil price should be good news in the longer term. We’ve all seen petrol pump prices fall below £1 a litre for the first time in nearly a decade- this puts more money in our pockets and cuts the running costs of many types of business. But these positive factors take longer to show up in equity prices.

So, it’s not been a good start, but there are eleven months of 2016 still to come. Don’t wait for the air to clear and share prices to calm down before you do anything. Embrace the chaos, make friends with uncertainty, and stick to your plans. Markets without turbulence are hardly markets at all.  

Investing involves risk and the value of investments and the income from them may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.