Lowes’ investment management process is designed to deal with market uncertainties, which are inevitably caused when controversial issues such as Brexit and the presidency of Donald Trump occur. With so much uncertainty in the world, are we about to see a seismic market reaction to all or some of these scenarios?
For UK investors, it is Brexit and the possible fallout from it that is closest to home. Speculation abounds that now Article 50 has been triggered, in the two-year run up to the point where the UK is no longer a part of the EU, the UK economy and stock markets will take hits. Negotiations are likely to be protracted – some suggest we could be in for a decade of discussions before we get even close to tying off all the deals necessary to establish trade deals with the EU – and during that time there will be continued uncertainty in the stock markets.
We’ve already seen the impact of the Leave vote in the weakness of sterling, causing Brexit to be felt in our grocery bills and the cost of holidays abroad, amongst other areas. In addition, the Office for Budget Responsibility (OBR) has forecast that inflation in the UK is likely to hit 2.4% this year. Others believe it could go as high as 3% or more.
The outcome of the referendum took many by surprise: as did the subsequent market rise following the Leave vote. However, while the FTSE 100 has risen to all time highs, reaching a peak of 7447 to date, that rise has, in turn, stimulated speculation that the markets are overdue a correction. So even without the effect of Brexit we could see markets adjust their value.
We are in for some uncertain times ahead and that inevitably leads to stock market volatility. Even if the markets did react dramatically during the Brexit process, this is something Lowes has encountered before and the Lowes investment team is well equipped to deal with it.
And now, while it is inevitable that during the process of Brexit there will be times when markets will fluctuate and we can almost expect that the media will focus on the doom, gloom and disaster scenarios, there is one strategy which will get us all through those periods – don’t try to time the market, remain faithful to your convictions and have a long-term outlook.
The worst thing us as investors do is panic – retracements are a function of the market and are a function of the market and history has shown us that those investors who panic when fear is rife simply crystallise their losses. In contract, staying invested in periods of significant uncertainty and volatility has paid dividends in the long term. Equally as importantly, those who see market corrections as a time to invest can reap significant rewards.