Investors need to accept that significant volatility is the new normal, affirms the chief executive of one of the world’s largest independent financial advisory organisations.
Nigel Green, founder and chief executive of deVere Group, comments as the Bank of England keeps interest rates on hold and as the new British PM, Theresa May names her new cabinet.
Mr Green observes: “Sterling jumped to two-week high and the UK’s blue chip index, the FTSE 100, retreats following the Bank of England’s unexpected decision today to keeps interest rates on hold for now.
“This follows the FTSE leaping up almost a full percentage point yesterday to reach a new 11-month high as Britain prepared to appoint Theresa May as David Cameron’s successor as Prime Minister.
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“This illustrates the current level of volatility in financial markets in the post Brexit vote era.
“With the new Chancellor, Philip Hammond, flagging a possible six-year renegotiation period, with ground breaking decisions being made by the UK and the EU, and with those decisions having a far-reaching global impact, investors need to accept that significant uncertainty, which leads to market volatility, is here to stay. It is the new normal following Brexit.”
He adds: “There are also other key geopolitical factors fuelling volatility and therefore potentially impacting investors’ finances. These include China’s economic growth, the possibility of Brexit contagion as other countries seek to exit the EU, the U.S. election, the failure of negative interest rates in Japan and the Eurozone to stimulate sustainable recovery, and the Fed’s nervousness over the U.S. economy.”
Mr Green concludes: “Investors have always faced some volatility but shifting fundamentals will continue to drive up volatility further in the markets for the foreseeable future.
“Not only do investors need to accept this, they need to embrace it. Volatility is good for markets and investors alike, because it generates important investment opportunities.”