The Investor 92 Asia

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THE INVESTOR | 11
25TH ANNIVERSARY
Look at a graph of the FTSE 100 Index over the past
25 years and you’ll see rises and falls. But the chart
also shows that long-term investors will generally
see the value of their holdings rise.At the start
of 1992, the FTSE 100 Index stood at little over
2,400 – a quarter of a century later, it stands at
almost three times that level.
The first upset came in 1992 when the UKwas forced out of
the European Exchange Rate Mechanism (ERM). Sterling’s fall by
the wayside was seen as a national humiliation.
The ejected pound fell sharply in value, but this enforced
devaluation sowed the seeds for recovery. In fact, apart from 1994
when prices fell slightly, stock market returns of over 15% a year
or more were the norm for the 1990s2.
The 1994 blip in equities was caused by a major rout in the bond
markets,which happened when the US Federal Reserve surprised
markets by raising rates.
In 1997 a currency crisis swept across Thailand, then toppled
Indonesia, South Korea and Taiwan before moving to South
America: Brazil andArgentina fell like dominoes.However,
even their turmoil was put in the shade as an oil-price collapse
precipitated the Russian default of 1998.This led to the collapse
and bailout of one ofWall Street’s biggest hedge funds, Long-Term
Capital Management (LTCM).
Emerging markets and bonds were devastated by this series of
defaults; but the main markets of theWest still managed to hold
on to gains, largely because the Federal Reserve cut interest rates.
Despite the short-term fluctuations caused by market
disruptions, history shows that investing in assets such
as equities, bonds and commercial property has proved
the best way to grow capital and protect it from
inflation over the long term3.
£100,000
BY ANTHONY HILTON
Halifax buys 60% of
the company’s shares
Name changed to
St.James’s Place
The downside was that this created the conditions for the dotcom
bubble.The internet seemed likely to transform the way the world
did business.Meanwhile, the world was awash with liquidity
following central bank interventions to mitigate theAsian crisis.
No idea was too outlandish to be treated as a sure-fire winner.
But sadly, the vast majority were not.The bubble burst in 2000.The
world was further shocked by the 9/11 attacks the following year
and the continued geopolitical instability which led to the 2003
invasion of Iraq.
All this caused savage downswings where global share prices fell
as much as 40% between 2000 and 2003.After the dotcom bubble,
share prices fell an unprecedented three years in a row.
But the survivors were rewarded when the old values reasserted
themselves and there followed five exciting years until the 2008
banking crisis.Most of what has happened since is fresh in the
memory but there are still some messages that deserve repeating.
First, the FTSE 100 has since recovered; but that path has not been
smooth.The European debt crisis in 2010 caused widespread falls.
There was a further rout the following year when the US lost its
AAA credit rating; and again in 2013 with what was called the‘taper
tantrum’,when the Federal Reserve hinted it would soon begin to
tighten policy. Lastly, 2016 got off to a bumpy start when the world
decided the Chinese economy was in trouble, and was shaken again
with the Brexit vote and the election of Donald Trump.
Yet the year ended with the markets nudging new highs,which
underlines the core message of the past 25 years: the stock market
journey is rarely smooth or easy, but the destination is worth it.
THE PARTY’S OVER
The dotcom bubble burst and left markets in the doldrums
1992
ERM crisis
1997
Asian currency crisis
1990–91
First Gulf War
1987
Black Monday
1998
LTCMcollapse
2003
Invasion of Iraq
2000
Dotcom peak
2001
9/11
2008
Lehman Brothers collapses
2010
European debt crisis
2011
US loses its ‘AAA’
credit rating
2007
Subprime loan
problems emerge
Equities Property Bonds
Cash Inflation
KEY:
WHY INVESTING MAKES SENSE
£1,200,000
£200,000
£300,000
£400,000
£500,000
£600,000
£700,000
£800,000
£900,000
£1,000,000
£1,100,000
1,287,381
329,238
1,190,150
262,463
925,831
2015
China slowdown
2 wealth.barclays.com. December 2016; 3 Bloomberg, January 2016Past performance is not indicative of future performance.
1992–2017