The beginning of 2016 for global stock markets was the worst in recorded history, according to information from Bank of America Merrill Lynch. Stock value declined rapidly over the course of the first nine days, falling as low as USD 5.7 trillion.
MSCI All Country World Index has already suffered a 9% decline this year. With its 18.8% decline since reaching the highest point in April, the index has almost reached the bear market territory. Bear market applies to a decline of 20% or more, and many stock markets around the world have reached this stage. This trend was increased by speculations in the media in regards to the possible drop to the level of 2008. It is, however, unlikely that this scenario will come to pass.
«Nordea Bank believes that it is caused by investors’ psychology, not the fundamental changes of financial indexes. After nearly seven years of rally on financial markets, investors have begun worrying that the bull market is finally over. And so they search for reasons why the market may experience collapse. However, increase of fluctuations is normal for this stage. Investors should learn to live with it,» – notes Nordea Bank’s Deposit Manager in Latvia Anzelika Dobrovolska.
«Concerns over the economic situation in China and doubts about the country’s government’s ability to manage economic decline have led to dramatic sales of Chinese stocks in the first days of January, which then quickly spread to other world markets. The unambiguous announcements of the People’s Bank of China in regards to the transition to the market’s dictated exchange rate and consecutive decline of the value of the Chinese yuan in comparison to the American dollar point to the fact that this decision came as a desperate step to ensure economic growth by means of currency devaluation. China’s economic development gradually becomes slower, which is demonstrated by the country’s GDP index in 2015 (decline to 6.9%). Still, Beijing has many options to continue supporting its economy. Nordea experts in Baltic States say the country may bet on fiscal benefits the most this year,» – explains the expert.
The continuation of oil prices is also reflected in investors’ mood. Considering that OPEC members refuse to reduce oil harvest volumes, Brent and WTI oil prices have declined below USD 30 per barrel, which is the lowest level since 2003. Supplies from USA continue to slowly decline, whereas the decline in demand is not nearly as big as investors say.
«Taking into account all of the aforementioned factors, the current market decline was caused mostly by psychological factors, not changes in fundamental indexes. Global economy is expected to continue growing in the next couple of years. Central banks in Europe and Japan will continue economic stimulation programmes to provide additional support,» – added the expert.
«Corrections and bear market appear often. They are not something that should be feared. Looking back, we have had 123 corrections and 32 bear markets in the past century. This means that the bear market appears once every three years and corrections are added more often than once a year. It is also the main reason why stocks are considered risky assets. It is the risk that secures profit for stock investors. It is historically proven that disciplined long-term investors don’t have to worry about corrections. Quite the opposite – they should use them as option to buy more assets,» – explains the expert.