Investors are getting anxious as inflation accelerates and Chinese property market woes intensify, with property developer Evergrande set to default on debts totalling a mind-boggling $300billion (£220billion). Now Robert Kiyosaki, author of “Rich Dad Poor Dad”, is warning that Evergrande could trigger a global stock and property crash.
Kiyosaki has called the Chinese property market a “house of cards” that is coming down and will bring global share and property prices with it.
He tweeted: “China’s Evergrande Group cannot pay. Valuation of properties fake. Will real estate crash spread to US? Yes.”
He even suggested this could happen this month. October has seen plenty of stock market crashes, including the Wall Street Crash of 1929 and Black Monday 1987. So are we on course for another?
Jason Hollands, managing director of Tilney Investment Management Services, said September and October are typically tough months for the stock market and this has been the case once again this year.
“Stagflation, supply chain bottlenecks, labour shortages, Chinese property and tapering down of central bank stimulus are serious threats.”
Top US technology stocks such as Apple, Amazon and Facebook have plunged, with the S&P 500 index of large US companies down 5.2 per cent since hitting an all-time high in early September, Hollands said.
Monday’s Facebook outage hammered its share price, and investors also fear it could be hit by stricter regulatory rules that could slow growth.
Hollands said Japan’s Nikkei index has corrected 10 per cent from its recent peak. “Markets are already deflating.”
So what should you do?
First, don’t panic. There will always be doomsayers and nine times out of 10 they get it wrong, Hollands added. “An outright crash is hard to predict with any accuracy.”
The last thing you should do is sell shares in anticipation of a crash that may never come. “Nobody should invest for a period of less than five years. Over such a timescale, the market has plenty of time to recover.”
History shows that shares are volatile in the short term, but outperform almost every asset class in the longer run.
AJ Bell investment director Russ Mould said: “You have to expect a bit of volatility along the way, otherwise you shouldn’t be investing at all.”
Mould agreed that the global economy faces severe challenges, including “US-China trade tensions, gathering inflation, tighter monetary policy, supply-side bottlenecks and record high global debt”.
China urgently needs to contain the Evergrande crash: “If it cannot, markets could be in for a bumpy ride.”
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The second thing investors must do is make sure they have a balanced portfolio, with access to lower risk assets such as bonds, cash and gold.
If all your Isa is invested into one high-risk corner of the market, say, US tech stocks or emerging markets, you are taking a big risk. So make sure you know exactly where your money is, and how exposed you are to a crash.
Never put all your eggs in one basket, Mould said. “Diversifying is a great way to reduce your exposure to whatever the stock market throws at us next.”
Third, if the stock market does crash, take advantage of buying opportunities. Kiyosaki reckons shares, gold, silver and bitcoin will also fall in the crash, which means the safest home for your money right now is cash.
He said this will allow brave investors to go shopping for bargains and buy these assets at bargain prices.
US billionaire Warren Buffett is the world’s best known investor and he is also in favour of buying in the wake of a crash when others are running scared and selling. He famously said: “Investors should be fearful when others are greedy, and greedy when others are fearful.”
Right now, investors are fearful. If Kiyosaki is right and share prices crash, they must soon learn to be greedy. Having cash to hand will help.