Savvy investors are using the markets’ panic over oil to their financial advantage, confirms the boss of one of the world’s largest independent financial advisory organisations.
The comments from Nigel Green, CEO and founder of the award-winning deVere Group, come as the FTSE 100 had the biggest one-day gain in five months at the end of last week, with European and U.S. markets also bouncing back. The rally continued into Monday on most major indices.
Mr Green comments: “Oil prices and stock markets have had a bizarrely close correlation in recent times. They’ve been linked in some kind of cha-cha dance with an almost perfect lock-step.
“This caused a self-perpetuating and largely unfounded panic mode sentiment that triggered global sell-offs.
“However, the rally seen at the end of last week on many markets which has continued into this week, suggests that savvy investors are now beginning to use the recent panic over oil to their financial advantage.
“It’s our experience in recent weeks that a growing number of global investors are turning their backs on the herd mentality, which like so many times before, has gripped the masses.
“Sensibly, they’re now focusing more on the solid fundamentals and eyeing the available high quality bargains in equities to top up and diversify their portfolios. They’re seeing the important buying opportunities that are presenting themselves.”
He continues: “Feeding new money into the markets now is a wise strategy.
“Markets will soon stabilise to reflect the strong economic fundamentals and equities, as history shows, are one of the best routes to real value growth for any investor.
“If you look at the current macroeconomic situation, it is generally quite positive across much of the world. For example, with U.S. employment at 4.9 per cent, the world’s largest economy is considered to have full employment.
“Plus – and this is too often overlooked by a panicking herd – cheap oil can be an incredibly valuable economic blessing. It increases the purchasing power of consumers across the world in key global economies such as the U.S., Europe, China, Japan and India.
“But these important gains from cheaper oil are far more disparate and the much lower losses are heavily focused and therefore more easily visible, hence they’re more able to drive markets into an unnecessary tailspin.”
Nigel Green concludes: “A herd mentality due to a dysfunctional recent link between oil and markets that has ignored fundamentals has driven market volatility.
“Sure, there has been a bump in the road due to an economic change caused by advances in fracking – but it has been just that, a bump.
“But this bout of undue panic is now being capitalised on as more and more investors are seeing through it.
“Increasingly, as last week’s rally indicates, investors are recognising a likely ‘J Curve’ – a mini market downturn which is then followed by a much larger upturn later for the global economy.
“Wisely, they’re looking at the generally sound macroeconomic landscape and taking advantage of the current attractive prices to boost their portfolios for the medium and longer term.”
At the beginning of February, deVere Group published findings of a survey that indicated that 76 per cent of high-net-worth investors plan to increase contributions to their investment portfolios in the first half of 2016.