What has triggered the sell-off in global stock markets?

Worries over the extent of the down-turn in the American economy and fears that some leading insurers may also suffer heavy losses from the credit crunch have combined to undermine confidence in stock prices. Even President Bush’s $140 billion tax-cutting package to boost the American economy and the US Federal Reserve’s emergency three-quarter point cut in interest rates have not been enough to calm the nerves of jittery investors who fear the measures are too little, too late.

Why are worries over the US economy affecting stock prices in London and elsewhere?

Despite the increasing importance of countries such as China and India, America remains the engine room of the world economy. A larger than expected slowdown or recession in the US would mean American consumers buying fewer goods and services from around the world. This would hit companies across the globe from Germany to Japan, Mexico to China.

How far are stock markets likely to fall?

As usual, opinions among economists and investors are divided. Some experts are predicting that the latest slump is evidence that we are entering a bear market, meaning prices could keep falling for years. Others say that markets have been oversold and that now is a good time to buy. What happens from here largely depends on the extent of the slowdown in the global economy. The only thing that is certain is uncertainty.

I am a private investor, what should I do now?

In the words of Lance-Corporal Jones of Walmington-on-Sea’s crack Home Guard platoon: “Don’t panic.” Over the long term, the sharp ups and downs of the stock market should even out to provide a decent return. Jumping out of the market at the first sign of trouble could mean missing out if shares prices bounce back. Having said that, anyone of a fragile disposition might be wise to get out now, as it is likely to be a rocky ride over the next few months. Only the brave or foolhardy would enter the market at the moment expecting to make a short-term profit. However, anybody who calls the bottom of the market successfully has the potential to make an awful lot of money.

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