The European situation: Billionaires dumping stocks; is a stock market crash around the corner?


When it comes to stock market, there are endless opinions and suggestions one gets to hear while investing, in order to follow smart money. But should we follow this ‘smart money’, when the most influential of investors are shedding stocks? Some of the most prominent and vocal billionaire investors are losing their trusts on the most dependable of stocks. Are these methods of preparing for a stock market crash in 2016? And should we, follow suit?

A global recession

A global recession, specifically as a result of the stock market crash, is on the way. This truism of the concept of economics holds at any point wherein the world is not in the grips of a contraction. The real question however is, always, when and how deep the upcoming downturn will eventually be.

“The crash will certainly come, but it’d be nice if it came two years from now”, head of economics, Thomas Thygesen, at SEB shared with over 200 commodity investors and analysts in London, last month. The audience was fascinated and sat there with unusual attention. One could forgive them for believing the slump hadn’t already arrived. Commodity prices have been crashing by two thirds since their peaks in 2014. Oil has been subject to the sell-off, suffering the most evil price collapse in modern history. Brent crude has plunged from approximately $115 a barrel in summer 2014, to just $27.70 in mid-January.

More on “defensive” stocks

In about 6 months, the European stocks have fallen by 10pc. “Of the 14 earlier occasions shares have had a similar decline, seven out of them having been associated with recession” says Dennis Jose at Barclays. He has also noted how investors have begun to rely more on “defensive” stocks, like consumer industries and health-care. “The gradual shift to invest more in defensives has been increasing to the highest levels seen since 1980, suggesting that traders may have already sensed and embraced the risk of a recession.”

However, there’s been a 0.5% growth in the past 3 months despite the European Union referendum. There have remained specific uncertainties around the overall near-term stance of the economy, most notably the result of the awaited referendum.

Hazardously close to dipping past 6,000

Irrespective of the growth, the FTSE 100 has now cast off around £85billion in nearly two weeks after the index hit a 2016 high. The stock market reached a 6410 mark on April 20 but since then it’s down more than 4.5 per cent at 6,080 and looks hazardously close to dipping past 6,000. It has occurred after growth in the UK economy was confirmed to have slowed to a good 0.4 per cent in the first quarter of 2016, and the most recent figures suggest that the rate could be even worse for the next quarter.

Experts have agreed to the fact that the disappointing figures have encouraged investors to dump stocks in the middle of concerns that the central bank policies of low interest rates and cheap money have ceased to stimulate growth. It is also believed that the Bank of England could now demote its forecast for Britain’s economic growth in 2016.