At the time of writing world stock markets have fallen in value by 10%-15% over the last 3 months of 2018. This is the worst world stock markets performance since 2008 when we experienced the global financial crisis.
Is this a stock market crash or a long-awaited and overdue market correction? In my opinion it is a market correction only. There is nothing fundamentally wrong with the world economy which grows inexorably year by year by an average of 3%. Many people think that Brexit is the issue which is affecting world stock markets but the major reason for the slump in share prices is the US and Donald Trump’s behaviour.
The US stock market’s 9 year record bull run has finally ended. There are several reasons for this. Interest rates have started to rise. Quantitive easing, otherwise known as the printing of money, has ended. A hugely tax cutting budget has been implemented leaving the US government short of funds. Worst of all there have been a number of trade tariffs imposed on certain Chinese imports.
I firmly believe that it is the trade tariffs war between the US and China which has spooked the markets the most. After all it was the international trade tariffs war that led to the Great Depression in the 1930s. Donald Trump’s inconsistent tweets on the subject haven’t helped matters one jot. I believe that behind the scenes Trump is hoping to negotiate a secret deal with the Chinese which will hopefully result in trade tariffs between the countries being lifted. If this were to happen then expect a large increase in share prices.
As for Brexit it really is a side show that isn’t having a major impact on world stock markets. Markets price in what they expect to happen over the next 18 months. As Brexit is less than 3 months away the effect of Brexit is already factored into current share prices. If there is no trade deal and Britain pays nothing to the EU, Sterling is likely to weaken but UK share prices are highly likely to rise. Why is this? It is because FTSE 100 index companies derive 80% of their revenue from overseas. When Sterling weakens the value of our exports become cheaper so share prices rise! This is exactly what happened when the Brexit result was announced. The downside for British consumers is that the cost of our holidays abroad becomes dearer when Sterling weakens!
So when will world stock markets stop falling? Well how long is a piece of string? Nobody knows. If any so-called expert claims that he or she knows what is coming next then he or she is clearly guessing at best or lying at worst. None of us know when share price falls will stop. What we do all know is that share prices are now 10%-15% cheaper than they were just over 3 months ago so now is a good time to buy! Markets could fall more in the meantime but as usual they will rebound back upwards as they always do.
So don’t be foolish by selling your investments and putting the money into cash. Even if you get the timing right when to sell you will almost certainly miss the time to buy again. Much research shows that it is impossible to time the market. Remember it is the time in the market not the timing of the market that makes the most difference to your investment returns.
We have recognised that the so called FAANGs stocks made up of Facebook, Amazon, Apple, Netflix and Google have become over-valued and face challenges ahead so we have sold them. Likewise the Chinese Internet stocks, Baidu, Tencent Holdings and Alibaba have all been sold for the same reason.
We have invested in a private equity company called Juvenescence which specialises in longevity. One of the founder shareholders is none other than the legendary investor Jim Mellon. Juvenescence will IPO in the next 12 months on either the Hong Kong or the New York Stock Exchange. We have great hopes for this company.
We have reduced the number of stocks in our fund from 41 to 33 and topped up our investment in 30 of these companies.
We have decided to focus more on the biotechnology, pharmaceuticals and longevity sectors in the fund because we believe these to be the most promising investment sectors currently.
Last Friday, 4 January 2019, world stock markets rallied by about 3% in one day! Whether this presages an upturn in world stock markets or not only time will tell.
Just think of the current low share prices as the equivalent of the New Year Sales with discounts on offer of between 10%-15%. Why not invest your spare cash into the Minerva Money Management’s CCM Intelligent Wealth Fund? Contact us to find out how to invest in the fund. You know it makes sense.
