UK stock markets predictably nose-dived as news of the emergency bail-out sent jitters across the City. As well as banks' shares falling by as much as 32 per cent, shares in some other financial services institutions took a hammering, as investors contemplated the worst case endgame for the credit crunch.
However, although fund managers conceded the outlook for equity markets remains uncertain, many insisted that the falls had created yet further buying opportunities in the market, claiming sentiment had got ahead of the reality.
Edward Bonham Carter, chief executive of Jupiter Asset Management, said he believed that although the economy may be heading for a period of lower growth, equities remained worth buying. "We believe we are facing an investment outlook that comprises lower economic growth and falling interest rates – especially in the US – which will make equities an attractive asset class. However the probability of individual shortfalls in corporate earnings will rise and therefore fund managers need to make greater distinctions between individual companies and sectors."
As long as the credit crisis prevails, however, it seems likely that markets will remain highly volatile. Ted Scott, manager of the F&C UK Growth & Income Fund said: "While I think that share prices have adjusted fully for the credit crisis, the nature and extent of the problem remains very opaque. This lack of visibility and the fear of further blow-ups will limit upside in the short term.
"I also [think] the UK and US economies will contract significantly in 2008 – although not to a recession – but the market has not discounted such a hard landing. Therefore, growth and defensive stocks should continue to out-perform."
Although the FTSE 100 finished the day more than 1 per cent lower, the US markets barely reacted to the negative UK news, suggesting investors believed the credit crunch is already sufficiently discounted into the market.Reuse content