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The Trader: The non-crisis “crisis” of the London Stock Exchange

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International financial crisis, or just the holiday season? Our stock market and trading columnist Greg Secker demystifies the FTSE’s woes

For the first time, the FTSE 100 fell by more than 100 points on four consecutive days this month. And it fell below 5000 again. Should we take this as an indication of a devastating crash in the world’s markets?

Or are we merely witnessing part of the London Stock Exchange’s annual cycle?

Every summer a unique phenomenon occurs on London’s markets; around August and September they seem to stagnate. Far from being a consequence of the continued recession, however, this trend far pre-dates the crisis of 2008.

By their very nature, stock markets need to be at the centre of constant activity for the stocks floating on them to be successful.

Public opinion is as much a factor as anything else in determining how well floated companies do. If people lose confidence in a business, whether or not the feeling is justified, it will have an impact on that company’s bottom line.

If a company makes a public faux pas, even though on paper it may be financially thriving, the value of its stock will often suffer as people no longer want to be associated with it, refusing to engage in public business transactions.

It comes as no surprise that around August every year, people across the UK escape the questionable British weather and enjoy a week or two of sunshine abroad. But what relevance would this have to the country’s top 100 public companies?

A perfect example of this is the BP oil spill in April 2010. Even though BP remained a viable business, the public was no longer willing to support it owing to the horrific effects of the disaster. The company lost millions of pounds on the stock markets as a result.

For public-owned businesses to remain healthy, their stocks need to be pushed out confidently and constantly. Clients buying shares need reassurance they’re making sound deals.

It is the success of these individual companies that, in turn, have an impact on the strength of the FTSE and other indices they are listed on.

So how does this account for London’s yearly depression?

It comes as no surprise that around August every year, people across the UK escape the questionable British weather and enjoy a week or two of sunshine abroad. But what relevance would this have to the country’s top 100 public companies?

Since it is public opinion that dictates how trustworthy a business is, it makes sense that it is largely the public who are responsible for influencing how much an enterprise is worth.

As summer hits, the people who would usually be in constant contact with their brokers, buying shares in various firms, are now, simultaneously, taking a break from stocks and heading abroad. This causes a predictable lull in the markets.

This dip is then compounded: with their clients away, it is the perfect time for seasoned brokers across London to take month-long holidays, leaving their workloads in the capable hands of hard-working interns and newly qualified traders.

When mid-September comes, and the brokers and clients are back to work, the natural balance returns and the markets make their customary revival

These temporary replacements are more than competent, but they lack experience. Without the usual contacts to pitch to, they are faced with a much more difficult selling process.

This accounts for some downturn. But obviously not everyone holding stocks in FTSE 100 companies lives in London, or even England.

However, once the initial lull caused by holidaying Brits takes hold, it sets in motion a snowball effect. Investors across the globe can see this seemingly inexplicable dip on the markets, triggering them to be more cautious when buying stock options in those companies.

This in turn leads to a further decline, worrying more potential buyers, and so the pattern continues.

When mid-September comes, and the brokers and clients are back to work, the natural balance returns and the markets make their customary revival.

While this year other world indices seem to be sharing the FTSE’s fate, the chronic stagnation of the markets is truly a phenomenon unique to London.

With this in mind, you can’t help but hope that when the FTSE inevitably recovers, it may prove to be one of the strongest European markets. It’s merely completing its cycle while foreign stock exchanges still struggle to recoup.

Greg Secker is the founder and CEO of trader coaching company Knowledge To Action. Former vice president of Mellon Financial Corporation, Secker is a world-renowned Forex trader with trading floors in London, Sydney and Cape Town. An experienced speaker, Greg has shared the stage with the likes of Richard Branson, Donald Trump and Alan Sugar. In 2010, Greg established the Knowledge to Action Foundation, a not-for-profit organisation dedicated to improving the lives of disadvantaged children.




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