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Don't panic about the FTSE 100 being at a five-month low (part one)

By Chris Bailey of Financial Orbit | Monday 10 September 2018


Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


A pretty poor first trading week of September has got the press all flustered with talk of the FTSE 100 being at five-month lows.  Older stock market hands of course know that this is when it starts to become interesting, after all it is better to buy low and sell higher than the other way around. 
 
Naturally I could talk about trade fears, global growth challenges and the omnipresent debt burden.  As we hit the tenth anniversary of the failure of Lehman Brothers in the United States, it is pretty clear that plenty of challenges are still out there despite years and years of ultra-cheap money and other interventions and this means the average global equity market return in the average global equity market, over the next few years, is going to be lower than the last few years. 
 
However the UK market is not the average market.  In fact - as per the latest edition of the largest regular monthly survey of fund manager opinion - it is the most disliked major market in the world based on current allocation versus recent historic norms.  No doubt Brexit fears and domestic political angst have played some role in this.  However additionally the Pound has been a dog currency.  Again, certainly Brexit fears and domestic political angst have helped induce the currency weakness, but so have shabby economic growth rates, a lack of general dynamism highlighted by the poor productivity figures and a feeling of entrepreneurial malaise.  International investors really hate investments in dog currencies because they kill returns when translated back to their home currencies.
 
There comes a point though when there is too much hate.  Think about this year and the contested bids for GKN and Sky (SKY), the big premium takeover of Fenner and even the late August Coca-Cola bid for Costa Coffee (part of Whitbread (WTB)). 
 
I think there will be more deals in the spirit of Warren Buffett's famous assertion to 'get greedy when others are fearful'...which means you should not be scared about picking a few stocks in the UK market, despite all the bad news out there.  I would still run away from an index tracker...but snaffling a few select FTSE 100 names still makes a bit of sense to me.  
 
So that's the theory...part two out on Monday has the practical application. 


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