Investors urged to seek bargains
Sunday 17 August 1997
They are expected to stress that technical factors caused the largest fall in percentage terms by the FT-SE 100 since October 1992 last Friday, and that fundamental share values - particularly among smaller companies outside the FT-SE 100 - remain solid.
On Friday, both the London and New York markets recorded sharp falls. Following the FT-SE 100's dive of 125.5 points, the Dow Jones industrial average collapsed by 247 points to end the session over 3 per cent down on the day at 7,694 after a profits warning from Gillette triggered a sell-off among large consumer goods stocks.
Commentators this weekend predicted that the three-year bull run, which has accelerated in recent months, is coming to an end, with a long-anticipated "correction" of up to 10 per cent - reminiscent of the 1987 crash - imminent.
But equity strategists contest this view, pointing to the lack of large rights issues this year versus 1987, when the market was deluged with cash calls, and the expectation that interest rates have peaked and that inflation is still under control.
"The market has been streaking away for a few weeks now in a rather indiscriminate manner, and this fall just takes it back to where it was on July 18," said one veteran equity strategist this weekend. "Clearly there was some exuberance that needed to be calmed down amongst top stocks, but I will be advising our traders to pay attention to the second-liners [the FT- SE 250 index of companies just outside the top 100] because there is still good value to be found."
Other strategists pointed to the larger-than-usual cash positions retained by pension funds, which have been established in recent weeks in anticipation of a fall. They added that finding buyers would not be a problem as soon as some of the leading shares "lost some of their froth".
The fortunes of the FT-SE 100 have been pinned in recent months on the rise in financial services stocks.
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