Market Volatility
Commenting on market volatility, Edward Bonham Carter, chief executive of Jupiter Asset Management, said: “Stock markets are volatile by their nature and in recent years we have enjoyed a rare period of unusually low volatility until the emergence of the sub-prime credit crisis in the second half of 2007. What we are experiencing now is, therefore, a return to normality.
“As the sub-prime crisis has emerged, fears over the outlook for the global economy have grown. Economic indicators and corporate news released this week, including the unexpected fall in US retail sales in December, a record quarterly loss at Citigroup and weak sentiment in Germany, have served to further heighten unease among investors. In addition, investors are grappling with uncertainty over the ability of central banks to continue cutting interest rates in the face of rising food and oil prices.
“Such concerns are likely to continue affecting sentiment for some time. However, while these periods of heightened market volatility can be difficult to bear, they can also provide buying opportunities for long term investors as markets tend to focus on bad rather than good news and potentially exaggerate their effects.
“We continue to believe that stock market fundamentals remain positive, albeit dampened by the prospect of slower economic growth and tighter lending conditions as banks strengthen balance sheets. Our view is that while economic growth will slow, the global economy is unlikely to go into recession this year and that the impact of higher food and oil prices will be limited as they are unlikely to result in higher wages due to strong competition in labour markets. Also, as the rate of economic growth slows, we should expect the rate and severity of earnings downgrades to increase, particularly in those companies and sectors exposed to over-stretched consumers. Nevertheless, corporate balances sheets are, on the whole, in sound condition and valuations are starting to reflect the slowing outlook for earnings.
“Assuming central banks respond to the slowdown in growth with further reductions in interest rates and the major economies do not go into recession, equities represent attractive investments relative to other asset classes. So, investors should hold their nerve and view sharp downturns in share prices as a long term buying opportunity – with the proviso that stock selection remains key.”
NOTE
Jupiter Unit Trust Managers Limited (JUTM) and Jupiter Asset Management Limited (JAM) are both are authorised and regulated by the Financial Services Authority and their registered address is 1 Grosvenor Place London SW1X 7JJ. They are both subsidiaries of Jupiter Investment Management Group Limited and the group is collectively known as "Jupiter”. The above commentary represents the views of Jupiter’s Chief Executive at the time of preparation. They may be subject to change and should not be interpreted as investment advice. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given.
