Killik: Market Setback is a Buying Opportunity

Killik & Co's Rachel Winter tells Emma Wall why this week's stock market volatility is a good thing, and how investors can take advantage of the fall

Emma Wall 6 February, 2018 | 1:43PM
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Emma Wall: Hello, and welcome to the Morningstar series, "Ask the Expert." I'm Emma Wall and I'm joined today by Killik & Co's Rachel Winter to discuss the global stock market volatility.

Rachel Winter: Good morning, Emma.

Wall: So, over the last week, we have seen the FTSE 100 fall in value and in particular, over the last couple of trading days, we have seen increased volatility across global stock markets triggered by jobs figures from the U.S. on Friday. What should investors do about this new market environment?

Winter: Well, I think, the most important thing is not to panic. And actually, I'm quite relieved to have a bit of a fall in the market because it's been going up so consistently for such a long time that some areas of the market did look quite expensive. I think people were getting quite nervous because there hadn't been a drop in the market for so long. People were almost waiting for when that was going to be. So, actually, I think it's a good thing that some stocks are starting to come down and hopefully, we will start to see some buying opportunities.

In my view, I think, this is a short-term thing. I don't think it's a start to the next financial crisis. I don't think it's going to be a huge market crash. But I think it's natural that markets are volatile, and I think it's good that we have seen an end to the very consistent level of rising that has been the case over the last year.

Wall: So, it seems that you are saying this is not the beginning of the end. This perhaps is the beginning of increased volatility. Is that something investors should be prepared to stomach then going forward? We will see this increased volatility in markets?

Winter: I think so, yeah. In my view, that's how markets should operate. They should be a bit up and down. They shouldn't be consistently rising over time. They should really be going up in line with global growth. And over the last year, we have seen markets far outpacing global growth. So, I think, it's good that the valuations have come down a bit, so they do correspond more to more normal levels.

And also, the reason that markets have been so high over the last few years is because interest rates on bonds have been so incredibly low. Now that we are expecting interest rates, particularly in the U.S. to rise, and that was perhaps encouraged by the strong comments by the Federal Reserve last week. They have started to say they are feeling very positive about the U.S. economy.

That's caused people to think that perhaps now wages will start to rise. That will cause inflation. That will then cause interest rates to rise perhaps faster than people are currently expecting. That's going to mean that bond yields will rise and therefore, when bond yields do rise, that tends to cause a bit of a wobble in equity markets.

Wall: So, I suppose your message then is, don't panic and look for buying opportunities?

Winter: Exactly. So, we would always use the phrase, 'it's time in the market, not timing the market that counts.' It's very, very difficult to predict when the market is going to rise and fall, but it's much easier to pick a great stock, a company that you have a lot of confidence in and hold that stock for the longer term. So, if you do have a diversified portfolio, then I would just keep hold of it and ride out the volatility.

Wall: Rachel, thank you very much.

Winter: You're welcome.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Emma Wall  is former Senior International Editor for Morningstar

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