05 September 2018
It is hard to believe that a decade has passed since the collapse of Lehman Brothers set off a wave of asset price deflation, rocking not just global stock markets, but also, and more importantly, housing markets and the real economy. With aftershocks still affecting everything from politics to investor psychology, the seismic events of 2008 feel very recent.
At this anniversary of the crisis, however, I am keen to take a step back from the market’s daily rumblings and assess what has changed since those fateful days. Could a similar event happen again, and are investors justified to regard the global economy as fragile?
Another financial meltdown like the one triggered by Lehman’s collapse does not seem probable. First of all, the root causes of the crisis appear to have been addressed. Banks carry much greater capital levels against their loan books, lending standards have tightened, asset prices have recovered and the financial system has become far less interconnected. Despite strong asset price growth over recent years, investors have remained wary, shying away from the inherent optimism that led so many individuals to take leveraged exposure to rising asset prices. Additionally, the financial system is fundamentally less intertwined than it was at the time of the crisis, which means the risk of contagion is lower, even if there are - and will continue to be - pockets of macroeconomic and geopolitical turmoil.
Interestingly, today’s market participants place greater emphasis on macroeconomic and geopolitical analysis to determine investment strategy. These concerns did not feature much in the run-up to the crisis but now dominate the conversation - a direct consequence of the financial crisis and other crises since then, from the sovereign debt crisis in Europe to the current upheaval in Turkey and emerging markets elsewhere. In my view, the pendulum has swung too far in this direction. Over the long term, the correlation between macroeconomic, geopolitical and political outcomes and the direction of asset markets is at best loose. Such turbulence also often plays out in seemingly contradictory ways, for example in 2016 when both debt and equity markets continued to perform well despite the Brexit vote and the election of Donald Trump.
Finally, not all bear markets are alike. When the tech bubble burst in 2000, only a relatively small number of asset holders were affected (stock market exposed speculators, participants in early-stage tech company stock option programmes etc.). Economic growth slowed but the US economy overall did not contract during the period that the bubble deflated. In 2008, however, individual exposure to falling asset prices was pervasive, leading to demand destruction on a much larger scale. On this occasion, the link between the real economy and asset price deflation was atypically strong.
This is why, in today’s circumstances, valuation and long-term prospects for individual securities matter more for investors than the ‘mood at the Fed’ or the latest inflation print in Europe.
- Another financial meltdown like the one triggered by Lehman’s collapse does not seem probable because the root causes of the crisis appear to have been addressed, and the financial system is less interconnected.
- Investors are now overly focussed on macroeconomic and (geo-)political risks, but these rarely drive markets in the longer term
- The 2008 crisis was unusually destructive because of widespread individual exposure to asset prices
- In today's markets, whether a portfolio will do well will depend on valuations and long-term prospects for individual securities rather than macro signals
Lesen Sie mehr
The value of investments and the income from them can go down as well as up so you may get back less than you invest. Past performance is not a reliable indicator of future results.
These materials are provided for information purposes only and are intended only for the person or entity to which it is sent.
These materials do not constitute a distribution, an offer or solicitation to engage the investment management services of Fidelity, or an offer to buy or sell or the solicitation of any offer to buy or sell any securities or investment product. Fidelity makes no representations that the contents are appropriate for use in all locations or that the transactions or services discussed are available or appropriate for sale or use in all jurisdictions or countries or by all investors or counterparties.
Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. They are valid only as of the date indicated and are subject to change without notice.
This material was created by Fidelity International. It must not be reproduced or circulated to any other party without prior permission of Fidelity.
This communication is not directed at, and must not be acted on by persons inside the United States and is otherwise only directed at persons residing in jurisdictions where the relevant funds are authorised for distribution or where no such authorisation is required. Fidelity is not authorised to manage or distribute investment funds or products in, or to provide investment management or advisory services to persons resident in, mainland China. All persons and entities accessing the information do so on their own initiative and are responsible for compliance with applicable local laws and regulations and should consult their professional advisers.
This content may contain materials from third-parties which are supplied by companies that are not affiliated with any Fidelity entity (Third-Party Content). Fidelity has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content.
Fidelity International refers to the group of companies which form the global investment management organisation that provides products and services in designated jurisdictions outside of North America Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. Fidelity only offers information on products and services and does not provide investment advice personal recommendations based on individual circumstances.