most fund managers believe the markets are just levelling out, although further declines in UK have been predicted
In recent weeks investors have been watching global equities closely as market volatility intensifies on the back of US inflationary concerns.
Since May, the S&P 500, FTSE 100 and MSCI Emerging Markets index have all lost around 7% of their value, while the Topix 500 has fallen 13%.
The big question is whether this is a temporary blip in a bull market or the sign that something rather unpleasant is on the way.
While many believe this is just a levelling out of markets that have seen steady rises for several years, Ted Scott, manager of the F&C UK Growth & Income fund, believes further falls in the UK are imminent.
He said: "The speed at which UK stocks have fallen has been surprising, but there is still some way to go and it would not be surprising if there is a decline from peak in the order of 15% to 20%.
"The economic environment is more challenging. Fears of inflation and a slow down in global growth have created uncertainty. And it is only when investors are certain rate tightening is over that markets will start to improve. It is likely UK stocks will not look more optimistic until after the summer."
However, Scott does see some opportunities for investors in the short term in high dividend yield stocks.
His views are rather more bearish than those of his peers focused on markets outside of the UK.
Managers at Merrill Lynch and Invesco Perpetual do not believe the falls are a start of a long-term bear market.
Kevin Rendino, fund manager of the Merrill Lynch US Basic Value fund, said the downside for investors was limited and the weakness seen in equity markets should not be viewed as a change in direction, but rather as a correction within the context of a longer-term bull market.
He said: "We do not believe the conditions are in place for a hard landing. Macro policy is not tight, global growth is firm, and vulnerabilities in household finances are offset by a strong corporate sector where profit growth this year has continued to come in ahead of expectations."
For the emerging markets, Kathryn Langridge, head of international equity products at Invesco Perpetual, also believed the case was still positive. She said it has just not proved possible for investors to keep putting such large inflows of money into emerging market stocks.
Coming into the May sell-off, inflows into emerging markets funds on an annualised basis were running at almost $125bn (£68.6m).
Overall, corporate fundamentals for the emerging markets remained sound and the sell-off was not the start of a long-term bear market, according to Langridge.
She explained: "The 12-month forward price-earnings ratio in global emerging markets is at a 20% discount to the world. Dividend yields are now 2.5%."
Some groups are seeing the sell-off as a buying opportunity, Ben Yearsley, investment manager at IFA group Hargreaves Lansdown, claimed.
He said: "The Indian markets have fallen 20% and a brave investor might see this as an opportunity to make money. The correction in the market is not a bad thing. Company valuations still look cheap."
Another country that is expected to do well is Japan, according to Stephen Docherty, head of global equities at Aberdeen. He sees the sell-off in Japan to be part of the reaction to US inflationary concerns, but believes the country will benefit from a rate hike.
He said: "The country is set to end its zero interest rate policy, which will be good news for the banking industry. Banks will be able to start to make money because they will be able to charge more for credit."
One approach to avoid stock market losses is to use a balanced diversified approach, said Patrick Connolly, financial adviser at Towry Law JS&P.
He explained: "We are not trying to guess whether or not there will be further falls in the market. Nobody can predict the future.
"What we are trying to do is advise our clients to have a diversified portfolio that includes a mixture of assets not correlated to each other to protect themselves from risk."
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