They say timing is everything and on reflection the timing of yesterday’s investment blog post about price and value was inappropriate. Global stock markets have tumbled in the last week. An article yesterday on the BBC News website provides a succinct explanation:
In summary aggressive interest rate policy in the US and US/China trade wars are the main culprits. The former has led to falling bond prices and rising yields. At certain levels these tempt equity investors to sell and switch to bonds. The trade wars now appear to be having a negative impact on the global economy. According to Luca Paolini, Chief Strategist at Pictet Asset Management global indices of manufacturing activity have fallen to a two year low whilst there has been a spike in companies cutting profits forecasts. Earnings upgrades are now lagging downgrades.
Pictet are however not too bearish pointing to more favourable indicators and valuations compared to January 2018. From my perspective seeing portfolios hit by stock market falls is never comfortable but it needs to be remembered that economic fundamentals change much more slowly than stock market prices. The latter are highly volatile, a shock to some after a very benign 2017, but sharp falls do not necessarily mean there is something rotten at the heart of the global economy or that valuations are too high.
In conclusion I don’t think the content of my blog yesterday arguing that price and value are different and markets are not especially over-valued was fundamentally flawed. Recent events demonstrate that whilst prices have fallen sharply the underlying fundamentals of the global economy have not changed that much. After all we knew about rising US interest rates and trade wars a week ago, two weeks ago and two months ago. That said I should apologise for the timing of my message or not including a comment about market events, perhaps leaving you with impression that prices are well supported and are likely to be stable.
The content of this blog is intended for general commentary only and is based on my understanding of stock market valuations. Nothing in this article should be construed as personal investment advice. You should seek individual advice based on your own financial circumstances before making investment decisions.