The year may be different but the rollercoaster ride for global stock markets shows no sign of coming to an end.
Before most of us in Britain had even managed to get back to work after our New Year celebrations, reports were coming in that the Chinese authorities had closed down the main exchange in Shanghai after Monday’s losses reached the 7% mark.
Trading suspended in Shanghai
China introduced this “circuit breaker” in the wake of last year’s falls: it automatically suspends trading for 15 minutes if values fall beyond 5%, in the hope that investors can regain their composure. But if the market drops a further 2% after trading resumes, it shuts again and remains closed for the rest of the day. On Thursday, these suspension rules were implemented again after just a few minutes.
While the Chinese government clearly hopes this policy will provide some much-needed control over stock prices, the fact it has been used twice already in 2016 does not instil much confidence. And that certainly appears to be the view taken by the rest of the world: China’s latest problems, which stem from more weak economic data, have triggered a new wave of falls in stock markets around the world.
A worldwide confidence shock
Already, the FTSE 100 in London has dipped from its 2015 closing position of 6,242 to less than 5,900 on early trading on Thursday. And if British shareholders are nervous about their investments, they have every right to be: over the course of last year, the FTSE 100 in fact lost 4.9% of its value. This is the worst performance since 2011, and lags behind rival markets including the US, France, Germany, Japan and even China – although the picture there now looks substantially bleaker.
Wall Street lost only 2.2% in 2015, while there were gains of nearly 10% in France, Germany and even recession-hit Japan.
With the leading FTSE companies generating dividends worth about 4% a year, this means that the average UK-only investor is likely to be nursing a loss for the past 12 months, with no sign that matters are set to improve.
What will the market hold for 2016?
As many people understand, shares are not a one-way bet and there is always the chance that values will fall as well as rise. But the events of 2015 and 2016 so far will give a large number of investors pause for thought. They may well ask, is this risk worth taking? Will the market rebound this year to offset my losses? Should I throw good money after bad?
P2P – a refuge from market turbulence?
Luckily, saving and investing is no longer a straight choice between low-risk, low-return deposit accounts and the volatility of the markets. Alternative finance, and particularly peer-to-peer (P2P) lending, offers a level of risk somewhere between these two extremes – but for the moment at least, returns are significantly higher.
Over the past year, and indeed since the service started in 2005, lenders with Zopa have typically made 5% once bad debts are taken into account. For anyone seeking refuge from turbulent markets, this is certainly an eye-catching figure.
With peer-to-peer lending your capital is at risk.