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‘Don’t panic’ is the call as markets wobble

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27/02/2007

As the world’s stock markets pick themselves up and dust themselves down after Tuesday’s drubbing at the hands of spooked investors, many people are asking if this is The End of Civilisation As We Know It?.

Well, perhaps not, but many UK investors are asking if their saving and investment in the markets is quite safe after the rash of red figures that spread across the dealers’ screens in the past few days.

To recap: on Tuesday 27th February worldwide share prices lost massively after a 9% fall on the Shanghai market. This precipitated what Richard Hunter, head of UK equities at Hargreaves Lansdown, calls the ‘snowball effect’, with losses growing in size as they rolled across the world’s markets like a lump of slush down a ski slope.

The UK FTSE fell by 1% in early morning trading the following day, bringing the combined two days’ losses to 3.2%, or about £65bn in hard cash terms. France’s CAC 40 dropped by 1% and Germany’s DAX was off 1.1%, and it looked as if the markets would need the intervention of a financial Corporal Jones from ’Dad’s Army’, with a clarion call of “Don’t panic, Captain Investor” to rally the panicking troops.

And that’s exactly what Hunter, a staunch member of the investment community’s Home Guard, counsels. “You have to remember that the market never goes up in a straight line,” he says.

“The market is always prone to corrections and, in these periods, it has a chance to reassess itself.”

He continues: “Investors should be looking at the long-term prospects and, from where I’m standing, these are looking pretty good just now. I know that investor confidence is a very delicate flower indeed, but just remember that corporate earnings are still powering up – take a look at the numbers being unveiled by the banks – and the general economic environment is pretty benign, despite the prospect of interest rate rises in the early part of the year.

“I’m encouraged by all this and again I would send the message that there is no need for anyone to panic and that people’s saving and investment in the market is fundamentally safe – as safe as it can be at any rate.”

So why did a rogue bear in the Chinese market cause such chaos, albeit for what may be only a short period? “China has been one of the main emerging markets for a long time now,” replies a senior analyst at a City dealing firm.

“Its main stock index has more than doubled in value in the past year and I wonder if these gains have been too high, too fast. The trouble is that once the market fell there, others catch the same ailment as if there’s an infectious bug spreading through the dealing systems.

“My own perspective is that this will prove to be a temporary aberration, but it is still significant, if only for the impact it has on investors’ perceptions of their own position and their own saving and investment in the market, which is after all what they are primarily interested in.”

So what are the prospects now for stocks and shares. Are we in for more stormy weather or is it full steam ahead as dealers shrug off the seasickness of the past few days?

Clem Chambers, chief executive officer of Advanced Financial Network, sticks to his familiar mantra. “You’re in the market for the medium to long term,” he reiterates. “It’s not a question of get rich quick, it’s more a case of become affluent slow.”          

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