It’s been a very tough recent period for UK investors, with the FTSE 100 falling by 4.5% in the last week alone.
Indeed, it now sits at the same level as all the way back in June 2013 and, perhaps more importantly, shows little sign of ending its correction any time soon.
Ebola
Of course, a big reason for the recent falls in the FTSE 100 and other stock markets across the world is the outbreak of Ebola. With it now appearing in the US and only a matter of time, apparently, until it becomes more widespread across Europe, the effects of having an Ebola outbreak in the developed world seem to be weighing heavily on investor sentiment.
And it seems as though things are set to get worse before they get better with regards to the Ebola outbreak. As a result, it would be little surprise if the FTSE 100 and other stock markets around the globe were to fall further —possibly below 6,000 points in the FTSE 100’s case.
Other Investor Challenges
Clearly, there are other key factors for the current weakness in the FTSE 100. A notable one is the threat of deflation in the Eurozone. While the ECB, under Mario Draghi, seems ready and willing to commence a major stimulus programme of the QE variety, politicians across Europe seem to be stalling the process somewhat. Investors, it seems, lack confidence in the Eurozone’s ability to avoid a deflationary period and, as a result, are selling stocks en masse.
In addition, weakness in specific sectors, such as health care and oil, is having a big impact on the wider index. For example, in healthcare, bid premiums have been eroded after US regulators decided to begin the process of closing the so-called ‘inversion tax loophole’ that previously allowed US companies to register for tax abroad and avoid $millions of tax payments.
Furthermore, with the oil price sinking to new lows, major oil companies have been marked down by investors as sales and earnings are due to come under pressure. As with health care companies, oil stocks make up a sizeable proportion of the FTSE 100, so when they are down the index tends to be down, too.
Looking Ahead
While Ebola isn’t the only cause of the FTSE 100’s current woes, it is likely to continue to create negative sentiment among investors. Furthermore, the almost inevitable spread across Europe is likely to cause even further falls in the wider index and could, in time, push the FTSE 100 below 6,000 points.
Of course, further falls mean great long term buying opportunities. Indeed, it’s through buying top quality companies at distressed prices that a lot of profit has been made in years gone by. So, which shares are worth buying, and why?