Black Monday anniversary should not stir dark thoughts
Comment Martin Flanagan
Thirty years ago today we had Black Monday, when stock markets worldwide were plunged into anxiety and a wave of selling. Wall Street fell by nearly a quarter in 24 hours; London did the same in two trading days. It was a similar story in Asian markets. The massive fallout was triggered by an unholy trinity of worries about a slowing global economy including an expected rise in inflation, a bubble in stock valuations, and contagion-friendly electronic trading that had been ushered in with the City’s Big Bang shake-up a year earlier.
It was a sudden and sobering affair (a palpable example of the regulatory truism that financial investments can go up and down and you may not recover the value of your original investment). But in reality it turned out to be a relatively brief interruption of a 20-year bull market that ran from 1980 to the millennium dotcom bust.
With three decades-symmetry, it so happens that many investors are currently pondering whether equities look overvalued again. The Footsie has recently reached a new record high and UK investors have experienced eight years of decent overall growth since the last recession. To the surprise of not a few, stock valuations have even managed to weather potential left-field game-changers such as Donald Trump taking up residence in the Oval Office and Samuel Beckett’s other less famous play, Waiting For Brexit.
Of course, events, dear boy, are always in the wings. As one City analyst wrote wittily yesterday, a quite possible dive into global protectionism could be a serious inflection point for financial markets along with a Third World War being instigated on Twitter in the early hours of the morning Washington, DC time.
However, even if stock markets are due a something of a correction, which may be helped by interest rate rises, virtually none of the market professionals I sometimes consort with believe anything like a rerun of the fleeting whitewater ride of October 1987 is on the cards. At most they see perhaps a fairly imperceptible dwindling of the bull run. There is more caution out there currently, but not panic suggesting any imminent tipping into bearishness.
Our banks are much better capitalised. Businesses have much money to invest, having stayed their hands because of Brexit. October 1987 seems an age away.