'Stay calm' advice for jittery investors

FUND managers say private investors should not be alarmed by this week's fall in world stock markets.

Virtually all the important markets except Japan dropped during the week, on the back of indications that the US would increase interest rates.

The UK market fell by just over 70 points on one day (Thursday), the US market dropped by 50 points on the same day, and Hong Kong slid by more than 300 points.

The steep fall follows a drift downward in markets over the month.

On average UK unit trusts have fallen 3 per cent in value over the month, Hong Kong-invested funds have dropped 7 per cent and US funds have fallen 4 per cent. Japan-invested unit trusts, on the other hand, are up 3 per cent.

The fall in the UK market was driven by sales in the futures market rather than big sales of UK equities .

The one-month fall in the value of unit trusts should be set against big one-year rises.

Latest figures from the Association of Unit Trusts and Investment Funds show that investors are still pouring their cash into the market.

Gross sales of unit trusts were pounds 1.94bn in January, the highest ever January total. However, profit-taking by some big pension funds meant that the total net investment was pounds 490m.

Fund managers said there had not been any panic selling by investors. Many stock market commentators had predicted a market correction.

One of the UK's biggest unit trust managers, M & G, said the market had over-reacted to the news about US interest rates. Peter Jones, M & G research director, said: 'We see it as a major buying opportunity. The comments made by Alan Greenspan (Federal Reserve Board chairman) are positive rather than negative.'

He said European interest rates were still on a downward path. 'The US is in its fourth year of economic expansion. The UK is in its second year. Interest rates in Continental Europe have not bottomed out yet.'

He said worldwide economies were going to expand over the next two years and prices were going to get better. M & G's UK general fund is down by about 4.3 per cent over the month.

Mary Blair, Fidelity executive director, said: 'The market is over-reacting to fears that US interest rates are going to go up. European interest rates are going to go down. There is no sense in panicking.'

Roger Cornick, Perpetual marketing director, said: 'The general feeling that interest rates have bottomed is causing a certain amount of mayhem.'

'We feel that investors shouldn't be concerned. They shouldn't be looking at markets over two weeks, they should be looking over 12 months when markets will be higher. Investors should not try and finesse their position.'

Stephen Lansdown, joint managing director of the independent financial adviser Hargreaves Landsdown, said: 'The phones have not been red hot with investors saying 'What shall I do?' '

The reaction from investors appeared to be in the form of not buying rather than selling. 'Investors have been knocked but they do expect things to be a bit volatile from time to time.'

David Jones, Sharelink chief executive, said: 'Private investors are standing back from the institutional nonsense that has been going on.'