A selection of wealth managers and private banks give their views about the recent market sell-off.

Markets got off to a sticky start to 2016 and things got even stickier last week when plunging oil prices fuelled nervousness. On 20 January, London's FTSE 100 fell 3.5 per cent into bear market territory – this was 20 per cent lower than its high in April 2015. The following day, the investor mood brightened when European Central Bank president Mario Draghi suggested an increase in stimulus as soon as March and oil prices jumped back over $30 a barrel. On Friday, the FTSE 100 index was up by more than 2 per cent and US markets opened with strong gains too.

Wealth managers have talked of “rainless clouds”, expressing concerns that markets are being driven by fears of a global economic slowdown rather than by fundamentals; that they should keep a long-term view amid some short-term pain, while taking advantage of any investment opportunities that arise from market movements.

Alan Higgins, UK chief investment officer for Coutts:

Markets have gone sharply against us so far this year, but the actual underlying economic fundamentals continue to support our positive view for 2016. 

The fears of a global economic slowdown that have been weighing on equities have stemmed from China. But China’s latest growth figures were in line with consensus forecasts – actually bringing a brief period of calm to the markets. Meanwhile, global corporate profits look set to remain comfortably positive for the foreseeable future. Most major equity corrections have been associated with a US recession. While US manufacturing has been weak, this is largely due to temporary factors like the strong dollar and the collapse in shale production. Consumer demand – by far the more important driver – remains robust and we believe will be boosted by low energy prices and strong job growth.

We are looking to take profits on some of our bonds and other ‘safe-haven’ assets that have rallied sharply on market fears and use the proceeds to add to our UK and European equity holdings. Where relevant, we will also look to top up on US Master Limited Partnerships, which generate stable income from US energy infrastructure and in our view have been oversold on the back of falling oil prices. 

However, we believe it would be more prudent to wait for markets to stabilise before increasing our overall weighting in equities and other risk assets even further.

Markus Stadlmann, CIO, Lloyds Bank Private Banking:

Downward markets can take share prices below intrinsic value. This has already happened in Hong Kong where the Hang Seng index has fallen below net asset value for the first time since the Asian crisis in 1998. However, some investors see a bear market as a buying opportunity as prices are forced down sometimes beyond intrinsic value. But there are risks. The financial markets can provide a leading indicator of what the economy as a whole is going to do. So if the economy does follow suit and contract, then the markets will have further to fall.

Our investment philosophy is for the long term. We’ve seen these market upsets before, they constitute an inevitable part of investing. Warren Buffett, the investment billionaire, is well-known for his approach of buying and “holding for at least ten years” and we agree. Why? If you buy and hold for one year, you have a 77 per cent chance of making a positive return. If you buy and hold for ten years, that increases to 99 per cent (source: Lipper, January 2016). So when investing, it is wise to investigate the evidence and make sure that decisions are based on research, sound reasoning and an appropriate time horizon.

Steven Andrew, manager of the M&G Episode Income fund:

Fundamentals in developed economies are strong enough that we have conviction that the West is not entering recession. Investors should look to take advantage of this, but only when there is a sufficient premium to justify the risk involved. One area we are seeing value is the US banking sector. The sector has suffered a large amount of negativity since the global financial crisis, however performance has remained robust and a number of companies remain undervalued. When the market begins to price in a consistent level of US interest rate rises, the banks should be the main beneficiaries and their price will begin to reflect this. We increased our exposure to US banks in the Episode Income fund last week.

Areas such as Europe and Japan have been growing, but slowing a little and missing inflation targets. Therefore, we think policymakers in these areas are likely to be inclined towards further easing. There are genuine risks in China and other Asian/emerging markets to worry about. However, even if Asia continues to weaken, we are unlikely to see a contagion effect developing into a global recession. A slowdown in China will not have the same impact at the aggregate global level as a similar slowdown in a major developed economy would.

It is sentiment, not facts, driving the market sell-off. Investors are overly fearful, partly because the memory of 2008 still lingers, and when investors are in pessimistic mood, they will seek the negatives and ignore the positives in any situation. In this context, when we see valuations cheapen so significantly in a relatively short period of time we start to look for opportunities to exploit.