UK far from alone in slowdown fears

Ed Monk

Ed Monk - Fidelity Personal Investing

Speaking with some Fidelity investors at an event recently, one statement really stood out.

I wanted to hear how experienced investors were handling this latest period of volatile markets, and the daily negative headlines that are currently buffeting UK share prices.

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Claire, who was attending the event with her husband Michael, explained: “The difference now compared to 40 years ago is the way news is presented. You are bombarded in an unhelpful way with negative stories, you are never told the positive. If the stock market goes down by a significant amount it’s the lead item on the news. When it goes up the next day by the same amount or more, that is never reported.”

It’s hard to disagree with that assessment and it’s a situation that creates a particular problem for investors, who need solid information to make rational decisions and to resist a herd mentality.

This week has started with some negative UK economic data leading the headlines. The Office for National Statistics has confirmed that UK Gross Domestic Product grew by just 1.4% in 2018, the lowest in seven years, after a slowing of the economy at the end of the year.

The final three months of the year saw growth rise by just 0.2%, while growth in the final month of the year actually fell, by 0.4%. It further raises the question about a UK recession - commonly understood to be two consecutive quarters of falling GDP - which the Bank of England last week gave a one-in-four chance of happening this year.

It’s not hard to become pessimistic when you hear news like that, but is it the full story? GDP growth is clearly important to the long term prospects of the UK stock market - growth and asset prices have been shown to be linked over the long term - but there are many other factors moving stock markets.

Currency is one of those and the bad news for UK growth, which tends to knock the value of the pound, often translates into higher share prices at the many UK companies who earn their money in other currencies.

It’s also true to say that the UK isn’t the only country facing a slowdown. Just last week the EU lowered its forecasts for growth across Eurozone countries in 2019 to 1.3%. The forecast for Germany was 1.1% and the EU’s forecast for the UK actually rose, to 1.3%.

Over in the US growth is expected to be much stronger than those levels, but even there forecasts have been coming down and the Federal Reserve recently saw fit to soften its interest rate outlook, suggesting growth will slow.

While the focus of UK news outlets is understandably the UK, investors should try to see the global picture because anyone taking fright at the outlook for the UK will likely have to find a new home for their money. In comparisons with the rest of the world the UK appears to be holding its own, even with the specific uncertainty that leaving the EU creates.

Claire was speaking from experience when she said that investors should be wary of overly negative headlines. She went on to describe how she held her nerve in the past, staying invested despite the bad news, and reaped the benefit of that when the recovery came.

You can catch Claire and Michael along with the views of other experienced Fidelity investors in our forthcoming episode of MoneyTalk, out soon.     

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