RE: Time to Buy?19 Oct 2023 12:59
"... the current SP is entirely down to the geopolitics".
I don't agree with that.
A good third is certainly down to geopolitics. In addition to Ukraine and Gaza we have the wider issue of the US repositioning their trade relationship with China, which is dragging down the US markets.
A third is probably down to wider concerns about interest rates and the sustainability/serviceability of government debt.
The last third is about the availability of spare cash to invest and willingness of punters to invest in the markets. Whilst most of the shares in PHNX are held by institutions, much of the day to day to share price movements are driven by you and I.
I read an interesting article in the WSJ the other day about what's happening in the US markets. Much of which will be happening here...
One reason the stock markets went mad during COVID was that those people who were lucky enough to keep their jobs and work from home suddenly had a huge excess of spare cash. Estimated at something like $5tn. It wasn't being spent on commuting and couldn't/wasn't be spent on leisure. Given the poor savings rates, much of that money ended up in shares (skewed towards the older demographic) or crypto (skewed towards the younger demographic) - driving the prices of both.
What the US is now seeing is:
- the older generation, who have mortgages, accessing those investments to service higher mortgage rates - or moving to cash/Treasuries for the yield
- the younger generation, many of whom have been burnt by crypto and have never before seen worthwhile savings rates, shunning shares in favour of cash - their risk appetite having gone completely the other way
As a result, on balance, money is moving out of the market.
So liquidity is down.
Which drives up volatility and generally depresses share prices.
Which leads to the self-reinforcing loop of people moving to cash.
Shares have a lot in common with houses. It might be that only 3-5% of the stock is being traded at any one time, but it's the 3-5% that's being traded that sets the price of everything. Equally, if that 3-5% drops down to 2-4% then you've taken 20-30% of the liquidity out of the market - making it more volatile.
We also have sanctions on Russians and the Chinese state generally discouraging its citizens investing money outside of its borders as economic growth stalls. The west - and UK in particular - has always been seen as a county that doesn't seize assets. That is no longer the case. Making it a less attractive place to park dodgy money.
@Porsche1946 is right when they bang on about liquidity - it's a bigger issue than most understand. But it's not just the UK that's suffering liquidity issues. And - IMV - it has little to do with Brexit.
So, not JUST the geopolitics :)
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