The past few weeks have been a stressful time for equity investors, as developments in America continue to set the tone for global stockmarkets. The nationalisation of Fannie Mae and Freddie Mac on September 7 reassured the markets of governments’ limitless capacity to rescue troubled institutions. The S&P 500 closed up 2% on September 8, while the FTSE 100 gained almost 4%.
But that assumption was shattered one week later, as British investors woke up on September 15 to discover that Lehman Brothers had filed for bankruptcy. “Moral hazard” was back. Merrill Lynch’s sale to Bank of America and the news that AIG – America’s biggest insurer – was in trouble, further compounded the panic. The S&P 500 and FTSE 100 ended the day down 5% and 4% respectively.
Just two days later, another mood swing. America’s Federal Reserve announced an $85 billion (£47 billion) “secured revolving credit facility” for AIG, allowing the company to meet its liquidity needs. At the time of writing, on September 17, the FTSE 100 was reacting positively to the news, with an initial bounce of 2%. Where the index will be by the time this supplement is published is impossible to predict.
With events moving so rapidly, it is important to take a detached view. Neptune’s Rob Burnett calls for a longer-term approach in his eurozone outlook (see page 15), urging investors to focus on the “key facts that should act as anchors in a stormy environment”. Banks face tough conditions, he says, but the European Central Bank is likely to cut rates next year and a weaker euro is positive for exports in the region.
Kim Gurney, writing from Johannesburg (see page 20), also finds grounds for long-term optimism in Africa. While the continent is dependent on appetite for commodities, financial firms have low exposure to the credit crunch. Countries such as Angola are investing heavily in infrastructure and Nigeria has made improvements in government reform and regulation. Last week’s power-sharing agreement in Zimbabwe is also positive news.
Looking at media coverage of recent events it would be easy to conclude the end of the world is upon us. Images of investment bankers walking out of their offices, boxes in hand, are visually striking and a reminder that the credit crunch is not without its victims. But it is also important to remember that the world is not homogenous, and there remain opportunities for long-term investors. For those willing to buy when there is “blood on the streets”, this could be the moment they have been waiting for.