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Comment: UK Private Investors Anticipated Equity Markets Correction

Alison Steed, 5 March 2007

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Who would have thought that a wobble in the Chinese stockmarket could have had such a major impact on markets around the world? Of course, any such thing would have been unthinkable, even unimaginable just 20 years ago, but China, as well as being the world’s most populous country, is now starting to punch its weight economically too. There is an irony really that it has taken so long for this to happen, especially when you consider that paper money was actually invented in China. But once again it appears the Chinese are having a major impact on the world economy. After years of austerity the Chinese are finally getting to grips with the Western trappings of luxury as it increasingly encroaches on the East. Porsche 911s, Prada and Gucci are all de rigeur for the Chinese nouveau riche – and there are already 500,000 US dollar millionaires there. China itself consumes more meat, coal, steel and grain than any other nation, is the world’s fifth largest exporter, and made around 80 per cent of the world’s electronics last year. When you look at it that way, perhaps it is not so surprising that fears of the regime restricting investments, which could prompt economic growth to slow, would have a knock-on effect to so many other economies. The FTSE 100 fell more than 148 points in a day, the FTSE 250 fell 431.5 points, the Dow Jones lost around 1 per cent of its value, and other major world indices also suffered after China’s Shanghai and Shenzen Index fell 9.2 per cent – the biggest fall in a decade. The timing was interesting too because a UK survey from Capita Registrars outlined that private investors had made gains of £5 billion on their investments in December and January, thanks to a 2.5 per cent rise in the FTSE 350. They, apparently, took the “opportunity to cash in on some of these profits, and sold £2.1 billion of their holdings in the same period”. The survey continued: “In the 12 months to the end of January 2007, investors sold a net of £10.9 billion of stock and also earned close to £6 billion in dividends. This £16.9 billion is equivalent to an average £650 for each household in the UK.” Individual private investors owned £202 billion of the FTSE 350 by the end of January, just over 11 per cent of its total value. While this sounds like an impressive figure, it is actually the lowest level of shares owned by individual private investors in UK plc for 12 months. However, anyone who did take profits at that stage will no doubt be patting themselves on the back after the rocky week we have had. But anyone thinking that they should hunker down and weather the storm without moving should heed the words of one of the world’s richest men, Warren Buffett. He is quoted as saying: “Look at stock market fluctuation as your friend rather than your enemy – profit from folly rather than participate in it.” There’s no denying, stockmarket fluctuations have been kind to him.

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