Posted inAnalysis

Another end of summer blip or something much bigger?

Last year there was a big sell-off at the very end of August, largely for one clear reason; China. Investors became worried over the true scale of China’s economic slowdown and what the implications would be for the rest of the world.

This time around the cause of the ongoing downturn in markets is far less easily defined. A complex mix of economics and politics is starting to come to a head as investors put both eyes squarely back on their portfolios after a summer spent with leisure as a bigger priority.

Over the opening two weeks of September the FTSE 100 slid from nigh on 7000 to 6690, while the FTSE 250 slipped from around 18000 to 17600. The United States equities market has seen similar falls over this period, with the S&P 500 dropping from 2180 to around 2120 and the Dow Jones Industrials falling from the 18500 mark to 18090.

In the case of the 2015 late summer sell-off, calmer heads prevailed over the following weeks as investors gradually got comfortable with China’s much reduced but still significant economic growth rate, and confidence grew in the capabilities of the Chinese authorities to steer the ship.

With the sell-off underway right now, the fall has been slower, but so may be the recovery as there are many more moving parts in the situation.

As has been seen at other times in recent human history, economic troubles can lead to political disruption which exacerbates the economic issues, and the cycle continues.

In terms what is going on now; central banks are nearing the point where their powers to boost economies have arguably been used up, or just as significantly, are being perceived by investors as having been exhausted.

If central banks are not putting wind in the sails of economies and they flatline or go backwards for a significant period, it is the politicians who get the blame and people vote for a change in the status quo. This is being seen in the UK with Brexit, in the US with the rise of Donald Trump and all across Europe with populist parties gaining ground.

Part of the Bonhill Group.