There are lessons to learn in these uncertain times
When America sneezes, the world catches a cold. In our interconnected world this reality is more reflected in the global stock markets than anywhere else. Gyrations on Wall Street duly influence major bourses around the world. From mainland European countries, the UK, to Japan in the far east, markets have been roiling as they nervously take cues from the US. America’s bellwether index has suffered its steepest Christmas Eve decline in decades, following the fourth interest rate hike by the Federal Reserve this year. The hike wasn’t out of the blue, yet the markets reacted and wiped away substantial gains. It is the signs of the times we are living in, where uncertainty is widespread. Global growth, for one, is slowing and there are signs of imminent economic crunch that have caused the markets to panic. What could make it worse is an escalation of trade war. US President Donald Trump and his Chinese counterpart Xi Jinping negotiated a ceasefire earlier this month, but whether they will be able to resolve their differences is anyone’s guess. The deal looks extremely fragile and there is a potential for the conflict to spread across a much wider front in coming months. Besides, the
Trump administration is keeping other world leaders guessing. The US has made surprise moves this year that have caught countries in Europe, Asia and the Middle East off guard. Ambiguity around Brexit is also rocking confidence of international investors and multinationals. And markets are no fans of uncertainty.
However, market squall such as this one provides valuable lessons in financial prudence. It reminds us all — fund managers, financial executives, and people like you and me who invest in stock markets to fund our various life goals — to be wise and not time the market. One should learn to be prepared for such inexplicable and sudden falls. We should stay invested for long-term and plan our exit as per our goals, not as per stock movements. As JP Morgan famously said, stock markets will fluctuate — whether we like it or not.
Ambiguity around Brexit is also rocking confidence of international investors and multinationals.