The European banking giant, Credit Suisse, found itself in trouble recently, which I’m sure you saw in the media. It spooked investors and its share price fell by a quarter of its value in a single day.
Thankfully, the Swiss National Bank threw its beleaguered compatriot a £44 billion lifeline that reversed some of the losses and steadied the ship. But this high-profile bank has not been the only one in turmoil. On March 10 this year, the financial markets were rocked by the largest failure of a financial institution since the 2008 crisis, when the US-based Silicon Valley Bank (SVB) went into administration.
Are we facing another banking crisis?
In an unprecedented move by the US Treasury, all SVB depositors will be covered by a government guarantee to ensure there is no contagion effect in the market and so far, this looks to be working.
Closer to home, the UK and EU banking sector is in much better health. Our banks are subject to much stricter regulations, which has resulted in better liquidity levels. They are, therefore, more able to withstand a run on the system.
Whilst the central banks have been tightening lending standards, interest rates and money liquidity to counteract inflation, the markets have been fighting against these actions, making it extremely difficult for economists to achieve the desired effects.
Many investors thought the market turmoil caused by the likes of Credit Suisse would be enough for central banks to pause their aggressive policies and allow the sector to regain stability, but on March 16, the European Central Bank (ECB) raised interest rates yet again.
Happily, these actions were seen as suggesting the ECB does not see significant risks in the system, which gave the markets a confidence boost.
How does this affect your investments?
At Belmayne, we take a diversified approach to investing that dilutes the negative impact on returns whenever there is trouble in one particular sector. That said, the recent banking turmoil did affect share prices across the entire financial industry.
We continue to monitor the situation, but we are confident there will be no lasting damage to our clients in the long term. In fact, the silver lining has been an upswing in global bonds, returning them to their position as a stabiliser during market downturns.
Investing in equity markets does not come without risk, but our portfolios are structured and stress-tested to withstand major market events. More than 100 years of data proves they are the biggest wealth creator in history and all you need to share this wealth is a disciplined, long-term strategy.
For more information about our approach to investing or the recent market movement, don’t hesitate to contact us on (01246) 298181 or email: enquiries@belmayne-ifa.com
