FTSE 100 slides on lack of eastern promise

Wednesday saw the FTSE 100 fall to its lowest level since 14 January, closing at 6,388. Yesterday, it fell further to 6367.89, whilst the Dow Jones dropped more than 2%.

This has been driven by concerns over the health of the global economy and China in particular, where the economy is slowing, the currency has been devalued and the markets are showing extreme volatility. This has impacted on commodities and mining stocks, and has led to further share and oil price falls around the world.

Asian stocks continued to fall this morning. After falling more than 3% on Thursday, China's Shanghai Composite index was down 3% at 3,552.82. Data released this morning also shows that Chinese factory activity has fallen to its lowest level in over six years.

A month or so ago, the concerns centred on Greece, but with Germany signing off on the bailout, this issue has become less important. However, the resignation of Alexis Tsipras, the Greek Prime Minister and the call for an early election will no doubt affect markets somewhat as well.

In the US, expectations of an imminent US interest rate rise receded after the Federal Reserve stated that the economy was not ready yet. The minutes from the Federal Open Market Committee's (FOMC) July meeting said: "Most judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point."

From an investor’s viewpoint, it is always an uncomfortable time when there is a market correction and a fall in capital value. However, selling after a sharp market fall usually proves to be a bad move.

Whilst it is difficult to predict market movements over the short-term, the reality is that investors should be focused on the long-term and history shows that equity markets tend to bounce back.

The current situation however presents buying opportunities at lower prices for the more adventurous investor. The outlook for the UK still looks favourable and the FTSE 100 does not look overvalued, with shares at just over 10% cheaper than the all-time high of 7103.98, reached just four months ago on 27 April.

For more information, or for help with your financial planning, contact Kellands.

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