Is the Great Crash of 2016 almost upon us?

Should you be buying shares, or baked beans and shotguns?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Uncertainty about the financial markets fills the air. The fear of a 2008/09-style stock market crash makes me wonder whether I should be buying shares or hunkering down with cases of baked beans and a shotgun to protect me in the lawless post-Brexit apocalypse that is surely on its way!

Investors want their money back

So far though, the crash is more ‘selective easing’ than ‘freefall plummet’. Some sectors have fallen, some are still falling, and some are rising. The latest sector hitting the headlines is commercial property.

Investors certainly seem to be panicking about the post-Brexit environment for the commercial property market. Many want their money back from property funds — so many that the funds can’t cope with the demand and need to sell property first before they can raise the funds to return to investors. Aviva, Standard Life and M&G, all temporarily closed their UK-facing property funds last week, locking-in investors’ money for, well, who knows how long?

Managed retreat?

Yet as the pound plummets and real estate funds seize up, the Bank of England steps up to the plate. Last week the BoE announced a lowering of the amount of capital banks must hold in reserve, thus freeing up an extra £150bn for lending to businesses and individuals.

But will anyone want to borrow when the economic outlook is so uncertain? The BoE reckons the flow of foreign money into commercial property slumped 50% during the first quarter of the year signalling an end to one big driver of property price inflation. Brexit worries weigh heavy, but had the price of commercial property pumped up too high? Many think so, which makes me believe that a managed retreat in property prices could be a good thing, and the way the property funds have put the brakes on the outflow of investors’ money could work to stop an easing in property values turning into a rout.

Naturally, the fear of falling property prices in general has driven down the shares of London-listed housebuilding firms. But I think they ran too far up anyway. Housebuilding is a cyclical industry and when profits are high for the housebuilders, the traditional valuation measures such as price-to-earnings ratios should be low — how else can the market discount the ‘inevitability’ of lower earnings ‘when’ the cycle next turns down?

Pressure release

As long as the pressure keeps blowing out selectively in areas of the economy that need a release — such as inflated property prices now — I reckon a big crash in the style of last decade’s credit crunch seems unlikely. It’s certainly not all doom and gloom on the London stock market because the shares of many internationally-focused firms are doing well as the weaker pound makes foreign earnings more valuable when translated back to sterling.

Overall, I would argue that vulnerable sectors already have weaker shares, and banks are better capitalised, have less unwieldy operations, and are stronger than they were in 2008/09. A major crash of ‘everything’ from here seems unlikely. Brexit jitters will surely pass, so it’s probably worth seeking out pockets of good value in shares representing quality firms then holding on through any more volatility that comes.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Number three written on white chat bubble on blue background
Investing Articles

Just released: the 3 best growth-focused stocks to consider buying in January [PREMIUM PICKS]

Highlighting some of our past recommendations we think are of particular interest today, due to a combination of business performance…

Read more »

artificial intelligence investing algorithms
Investing Articles

I asked Google AI for the best UK stocks for me to buy for 2025. Here are 5 names it gave me

Dr James Fox turned to artificial intelligence to explore the best UK stocks to buy in 2025. Here’s what Google’s…

Read more »

Investing Articles

2 no-brainer growth shares to consider in 2025!

These FTSE 100 and FTSE 250 growth shares delivered impressive share price gains in 2024. I think they should continue…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

How much would an investor need in an ISA for £800 in monthly passive income?

Generating a healthy dollop of monthly passive income need not remain a pipe dream. Paul Summers has whipped out his…

Read more »

Investing Articles

Has Tesla stock had its best days already?

Tesla stock has jumped around 70% in just a couple of months. Our writer likes the business -- but he's…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

In 3 steps, a new investor could start buying shares with just £500

Christopher Ruane outlines a trio of moves he thinks someone with a spare few hundred pounds could consider if they…

Read more »

Investing Articles

Up 513%! Can the Rolls-Royce share price  keep soaring in 2025?

Our writer sees reasons why the Rolls-Royce share price could go either way this year. Here's why he has no…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

£10,000 invested in Nvidia stock in 2020 would now be worth £244k! Here’s what could be next

Nvidia stock’s dominated the ‘picks and shovels’ market for artificial intelligence, but Dr James Fox believes it could be primed…

Read more »