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The Accumulator: surge follows slump in 'trampoline' market
The FTSE 100 bounced back from the worst of this year's sell-off in spectacular fashion, as markets enter 'trampoline' mode.
by Daniel Grote on Feb 19, 2016 at 12:15
The FTSE 100 bounced back from a terrible start to 2016 in spectacular fashion this week, registering the biggest five-day gain in our exclusive Accumulator data table since the turn of the year.
As so often is the case with markets, one of its worst weeks has been followed by one of its best. Our table, which covers the five days to yesterday, shows the FTSE 100 rose 8.2% in that period, after a 6% slump the previous week.
'We're in a trampoline market right now, where stocks are bouncing around wildly almost every day,' said Laith Khalaf, senior analyst at online stockbroker Hargreaves Lansdown.
'The implication is that fundamentals have gone out of the window and sentiment is dominating market movements.'
The sea of black that has replaced the red that engulfed our table of major stock markets last week underlines the old mantra of holding on when times get tough.
Adrian Lowcock, head of investing at AXA Self Investor, has backed this up with some research. Looking at 10-year rolling returns on the FTSE 100 since 1996, he found that in only six of 120 10-year periods would you have lost money.
'Only if you had bought during the dotcom boom and subsequently sold in the corresponding month 10 years later when markets were still reeling from the financial crisis, would you have lost money over a 10-year period, excluding any charges,' he said.
'The statistics demonstrate that time in the market is more important than timing the market. Investing for the long term is the wisest course of action and as we have seen this week markets can swing back just as quickly as they fall.'
The FTSE 100 raced ahead of every other major market, barring Russia. Oil's 17.1% jump as Saudi Arabia and Russia agreed to freeze production at current levels sent the oil-dependent MSCI Russia 13.8% higher and also helped the FTSE 100's heavy weighting in oil majors.
Currency movements meanwhile dented the chances of overseas markets from keeping up with the FTSE 100. Our Accumulator table measures returns in pound terms, so a slide in the euro in anticipation of more stimulus trimmed the MSCI Europe ex-UK's returns to 6%, while the relatively meagre 2.6% return from Japan's Topix index was weighed down by a 1% drop in the yen, as the currency's safe haven appeal waned amid the bullishness.
Big moves in currency since the turn of the year have also served to obscure just how painful losses have been for domestic investors in Japan and Europe. While the Topix has lost 7.9% so far this year for UK investors, domestic Japanese investors, or those who have 'hedged' currency, have endured a whopping 17.2% plunge. The MSCI Europe ex-UK has likewise racked up losses in double figures in euro terms.
It's also worth underlining that we haven't so far this year seen the fortunes of developed and emerging markets diverge in the same way as other years. The MSCI Emerging Markets index has lost 3.5% this year, a creditable performance given the scale of losses elsewhere. A weaker dollar, which has risen against an even weaker pound but fallen against a number of other currencies, has helped.
Amid all the bullishness, safe havens were hurt this week. Gold and silver are down 2.2% and 1.6%, while less risky bonds also lost money, apart from in emerging markets.
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by Gavin Lumsden on Sep 30, 2016 at 17:23