It's Black Monday all over again: any significant market sell-off is always accompanied by this lazy comparison (#BlackMonday). In this instance those using it could be forgiven by the fact that this is exactly how Xinhua Daily - the Chinese state's press mouthpiece - described it. Of course, the original Black Monday was a great deal worse, with the FTSE falling 23 per cent over two days and few major indices escaping the carnage - and, unlike China's predictable sell-off, coming without the prior warning of haphazard government attempts to backstop markets.
Don't panic, it's a buying opportunity: despite its severity Black Monday proper soon offered a great time to enter markets - had you been able to buy a FTSE 100 tracker in 1987, you'd have doubled your money in short order. The same has been said many times throughout the last month as markets have contracted, most frequently by those with a vested in interest in you staying invested or buying shares. Actually, the view that equities will come good for long-term investors isn't too far from our own, although there are times when waiting for 'better prices' is sensible, like now. I'd certainly be very cautious heeding any advice to indiscriminately ‘buy on the dips’ – this mini-crisis does feel like it has further to run, China's sell-off arriving as a convenient excuse for already nervous investors to take some money off the table rather than being the fundamental cause of the wider sell-off itself. Which takes us neatly onto…
Panic, the end of the world is nigh: others remain convinced that this is less healthy correction than fully-fledged rout. It is, the grizzliest bears will argue, symptomatic of the asset price bubbles being stoked by central bank policy of the past seven years, which has done little to address the fundamental problem that existed before the crisis that debt had become unsustainable, and is even more so now. There is more than a kernel of truth in this view, too - even if the doomsday view is overstating things just a tad, markets only look cheap if there is growth on offer, yet the ability of policymakers to stimulate growth is diminishing all the while. On that basis we are likely to see more share-friendly accommodative monetary policy for some time yet - but, whenever withdrawal is threatened, many more Black Mondays, too.
