Should Investors Prepare for Stock Market Falls?

Key market indicators are suggesting that we could be on the cusp of another global market downturn - should investors be positioning their portfolios more cautiously?

Emma Wall 29 August, 2014 | 10:50AM
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In December 2006, Schroders head of Asian equities King Fuei Lee gave an investor presentation with a slide entitled “Still More Signs of Market Irrationality Worrying Us”. Shortly afterwards there was a global recession and stock markets across the world began to tumble. In that slide he identified seven key indicators of market irrationality – five of which he says are now visible in the global markets.

“In 2006 I was worried by how irrationally markets were behaving,” said Lee. “It wasn’t enough to simply invest in undervalued companies with strong balance sheets, my investing methodology was not effective. I compiled a list of indicators that I thought revealed bubble-like trends in the stock market – and an alarming number are flashing again today.”

The first on the list is the VIX volatility index which is at a historically low level compared to the past 20 years. Lee says this is nonsensical when you consider the significant geo-political risks around.

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About Author

Emma Wall  is former Senior International Editor for Morningstar

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