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Can global markets rise in the second half of 2018?

August 2018


Tags: Macro Economics

For investors, the first half of 2018 had its ups - and downs. There have been modest declines in value across some of the world’s biggest indices in the first six months of the year: the Dow Jones index is down 1.06% since the beginning of 2018 and the FTSE 100, down 0.96%.

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Despite the bumpy ride and the slight overall fall so far, the outlook for the year as a whole remains positive, according to many analysts and investors.

Aberdeen Standard expects 3.9% global growth for the year. Other big fund houses are also maintaining their positive growth forecasts.


But opinions seem polarised - there’s both confidence and a lot of concern out there, too.

In a Selftrade twitter poll, 31% of respondents thought that global stock markets will rise during the rest of 2018, compared with 26% expecting a decline in value and 17 per cent expecting values to stay the same whilst the remaining 26% said they do not know.

 

When asked about their own personal holdings, a separate twitter poll showed that 38% of investors expect a rise, 35% a fall and 27% expect the value of their investments to stay the same

 

Despite the balance tipping in favour of the optimists, there is a high level of concern among investors – 37% of respondents to the Selftrade twitter poll stated they were very concerned about the valuation of their investments, against 25% who were confident.

 

Trade wars involving the US and the possibility of monetary policy tightening across the board represent the greatest threats to global growth. Despite such risks, the underlying fundamental data on things like pay, employment and purchasing, is broadly healthy.

In a note published last month, JP Morgan said: “We recognise the risks, yet see enough support from rising profits and sensible valuations to stay invested in stocks—and note that volatility is still moderate by long-term standards.”

If throughout the rest of the year, those risks start to fade and the strength of fundamental indicators becomes more apparent, then it is possible that markets will be relieved of some of their concerns and values recover.

Buy low

So this could be a moment of opportunity for canny investors to take advantage of buying at lower valuations.

An easy way to do that and to minimise risk is to set up a regular monthly investment. In times of volatility, it’s those investors who consistently invest through the highs and lows, rather than depositing isolated lump sums from time to time, who see the biggest gains over the long term (you can set up regular investments with Selftrade here). The key is to keep investing regularly without getting too spooked by the dips.

Look for funds focusing on undervalued stocks

Another way is to invest in funds that make finding undervalued stocks a priority. Undervalued just means cheap relative to their growth potential. There are a number of funds that specialise in just this approach. Often, the performance of these funds are less correlated with the rest of the market, which means they don’t always behave in quite the same way.

They can be a good option if you think there is a chance that markets will fall but believe some companies will continue to perform strongly, because these are the funds that go out of their way to identify these companies.

Fidelity Special Values is a fund that follows this strategy. 

Trade now

BT Group is also another stock that analysts believe is undervalued. 

Trade now

 

Remember that volatility can be an opportunity, and a slight dip in markets is not a reason to sell. On the contrary, for some of the best investors, that’s the moment to buy.

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Rebecca is an award-winning finance journalist and the Co- founder and Director of Good With Money

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Selftrade does not provide investment advice. This article is the authors view and is not the view or opinion of Selftrade and Selftrade accepts no liability for any loss caused as a result of the use of this information. The opinions expressed are those of the author at the time of writing and should not be interpreted as investment advice.

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