The chances of an October stock market crash are growing in my opinion. The FTSE 100’s flailing for traction around the critical 7,000-point marker and threatens to plunge lower. The FTSE 250 meanwhile has just sunk to its lowest level since July.
Here are the three main reasons why I think UK share prices could collapse in October.
#1: China’s property sector deteriorates
The popular saying among economists is that “when China sneezes the world catches a cold”. So it’s no shock that worries over the Chinese real estate market caused a mini stock market crash in September.
Regulations concerning China’s property market have been significantly tightened to curb aggressive business practices. Liquidity problems for the industry have subsequently jumped and pushed giant developer Evergrande to the brink. More could follow in the days and weeks ahead.
Brokers at Nomura are certainly fearing further bloodshed. They recently said that “we expect Beijing to maintain its property-related tightening measures and a rapid weakening of the property sector to deal a severe blow to headline GDP growth and government revenue.”
#2: Energy prices continue soaring
Surging energy prices are also threatening to damage global growth and cause a fresh stock market crash. Wholesale gas prices are soaring across the world and in the UK they just struck record highs (of £3.55 per therm). Oil values are also rocketing and the Brent benchmark in London has recently touched three-year peaks above $82.50 per barrel.
Energy values have cooled in recent hours after Russia’s president Vladimir Putin vowed to pump more gas to Europe. However, with a very cold winter being tipped in some parts, it could be a matter of time before these commodities soar again in price. This threatens to skewer consumer spending power and severely inflate factory costs.
#3: Broader inflationary worries worsen
Rising energy prices aren’t the only thing pushing up global inflation. Severe supply chain problems caused by Covid-19 restrictions, Brexit-related trade disruption, and a shortage of shipping containers is also pushing up prices. New Zealand unexpectedly raised interest rates in response this week, for the first time since 2014. Similar action from other central banks could be forthcoming in another blow to economic recovery.
Latest consumer price inflation data in the UK came in at a higher-than-expected 3.2% in August. It was also the biggest month-on-month rise on record. Another worse-than-predicted release is a strong possibility that could also prompt another stock market crash.
I’ll buy shares if stock markets crash
I won’t run for cover and panic sell if UK share markets slump again, however. In fact I’ll be there with my debit card looking for bargains to buy. As a long-term investor, the threat of temporary price turbulence doesn’t scare me. Share markets have proved for centuries that they can be a great way to make money over a period of years.
Besides, there’s a wealth of information available to help investors like me navigate the uncertain economic climate. I’ll treat a fresh stock market crash as an opportunity, rather than something to fear.