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By James Gonzalez, Market Analyst
With the stock markets taking yet another heavy blow this month, can we be sure that the sector is lucrative enough to make any money at all this year? Is it just sub-prime fuelling the withdrawal of investment funds or are investors taking their money elsewhere? The latest downturn came after news that the US Investment Bank, Bear Sterns, required emergency funding from the Federal Reserve to cope with its vast debt. JP Morgan Chase strategically moved in and bought out the bank at a fraction of its original value. To further calm investors’ nerves, and of course sweeten the deal, the Fed stepped in to take over $30 billion worth of the bank’s assets, therefore reducing the financial risk to JP Morgan.
The FTSE 100 share index took one of the biggest knocks ending 3.9% down on the back of the Bear Stern news, fearing that the credit crunch had reared its ugly head yet again. With this long-winded, drawn out uncertainty comes a deep seeded lack of confidence in the markets, and as players are repeatedly burnt it is only a matter of time for them to call it a day and hang up the mobile, close the laptop and say goodbye to their long-term friendship with the Bloomberg ticker. So where are investors resting their laurels? The price of gold has certainly increased sharply, which may provide investors with some much-needed breathing space. However, hand-in-hand with price increases comes a decrease in demand as jewellery manufactures lean towards recycling old stock as opposed to buying new, high priced material. Over the long term, research shows that gold does not perform as well as the stock markets. Therefore, with the yo-yo markets and a drop in gold imports, what is left for the investor to lay low and wait for the storm to blow over?
Over the last 50 years, property has beaten the FTSE in terms of providing consistently stable profits. Within this same period, property’s worst performing five-year cycle still grew by 16%, whereas stocks showed a huge deficit of -22%. The fact is property prices may fluctuate somewhat, there maybe price corrections to ensure a stable secondary market, but the truth is the bottom will not fall out of the property markets. Firstly, governments across the globe have enough practical understanding to ensure that property prices remain buoyant and will therefore adjust inflation levels and interest rates accordingly. And secondly, people will always need somewhere to live or play. Therefore, there will always be a buyer and there will always be a seller - whatever the conditions may be. Emerging markets not only offer the best overall returns, particularly if investors enter the market early, but they are also shielded heavily from the nightmare of cross border lending that has affected our lives and local investment markets.
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