The chance of a global recession has been heightened dramatically, according to deVere CEO Nigel Green, as global stocks, government bonds and oil prices took a sharp tumble at the start of the week.
Oil prices plummeted by almost 30% on Monday after Saudi Arabia launched an oil price war against Russia. The shock measures taken by Saudi Arabia added further turmoil to the markets, which have suffered in recent weeks amid growing fears that the spread of Coronavirus will severely damage the economy.
The FTSE 100 closed nearly 8% down on Monday, its worst drop since October 2008, while the Dow Jones plunged by 6.8% when US markets opened.
Green said: “Oil’s sharpest one-day drop since the 1991 Gulf war has further fuelled the sell-off in global stock markets that started a couple of weeks ago. Every major stock market was getting hammered as oil prices plunge due to a price war following the breakdown of Saudi Arabia’s oil-cutting alliance with Russia. This is an issue that will not be resolved overnight and it can be expected to have far-reaching consequences. It comes as the world’s scrambles to deal with the market mayhem and economic fallout caused by the relentless global spread of coronavirus.
“With the combination of the implications of the oil stand-off and the outbreak, I now believe that it’s almost inevitable that there will be a global recession this year.”
According to Green, investors should ensure they remain in the markets with “suitably diversified” portfolios to safeguard and build theirwealth.
He added: “As ever, there will be winners and losers and savvy investors and advisers will be eyeing the opportunities that fluctuations, panic-selling and mis-pricing generate, allowing them to revise and add high quality equities to their portfolios at lower prices. The ultimate impact that the oil price war will have on an already vulnerable world economy that’s struggling to cope with the spread of coronavirus remains unknown. However, the risk of a short but severe global recession in 2020 has now been heightened dramatically.”
Industry experts said investors should keep calm in the face of growing market volatility, with the sell-off set to present opportunities for investors who hold steady.
Adrian Lowcock, head of personal investing, Willis Owen, commented: “The scale of the fall means the UK has entered bear market territory for 2020 and only an end to coronavirus panic is likely to reverse its trajectory as confidence has completely evaporated.
“Difficult as it feels, investors should keep their heads whilst other lose theirs. Stay focused on the long term and do not obsess about the short term. The sell-off has and will present opportunities for investors, with some companies offering yields not seen since the financial crisis or the dot com bubble.”
The possibility of further falls was echoed by Darius McDermott, managing director, Chelsea Financial Service, and he warned also against knee-jerk reactions.
McDermott added: “Could share prices fall further? Quite possibly. But losses are not losses until you crystalise them. So investors need to hold their nerve and think long term. The worst thing you could do now would be to redeem your investments. And, if you thought the stock market was good value last week, it is even better value today.”
