There is much to encourage stock market bears in the results year-to-date with the FTSE 100 index down 2.54%, the FTSE Europe ex UK index down 7.12%, the US S&P 500 index down 5.07% and the FTSE Greater China index down by 9.94% (all figures from ShareScope). Soon we will be told that the January effect predicts the trend for the rest of the year. The flaw in that argument is that while a rising January may have some predictive value, a falling January has none.
Factors
As quoted in the Financial Times, “China’s main gift to the world has morphed from manufactured goods to morose pessimism”. The Chinese stock market bubble should have burst in mid 2015 but this was prevented by massive buying by state-owned institutions, which merely delayed the inevitable.
The long slide in oil prices to below $30 a barrel has encouraged bearishness. But, it has been driven more by rising supply and not by falling demand. It seems that Saudi Arabia will eventually beat the US shale oil drillers, all of whom need a higher price to survive.
In contrast, as a snapshot of the UK, the White Company, which sells upmarket homeware and accessories, almost doubled its profits last year despite an expensive overhaul of its distribution centre. That’s a ‘feel good’ purchase, discretionary money.
UK plc
The UK is a remarkably successful exporter of services as well as manufacturing; for example, in 2015 we exported more vehicles than ever before. We do not just serve each other at home, we produce services which attract customers from around the world. In 2015 overseas sales of services exceeded the value of manufactured exports. Exports are not just physical products loaded onto ships. They include everything sold to an overseas customer, including services, and the UK runs a surplus in services trade of more than £90bn a year (Daily Telegraph 30-01-16).
Business and financial services are a major part of the export success but many other sectors contribute. These include technology, including software and gaming; television, music and film; fashion and design; education and health services; and more. Our language, culture and expertise all help to underpin our success.
So What?
Short-term volatility in the markets worries investors and can be a big concern for those who need cash soon. But, what the markets did yesterday, or will do tomorrow (or next week, or next month, or next year) should have little bearing on investments laid down with a time horizon of 10, 20 or 30 years. The portfolios we manage take a long-term view and reflect the confidence we have in UK plc.