Keep perspective, not panic; professional investors believe we are in a normal correction.
Keep perspective, not panic; professional investors believe we are in a normal correction.

You may have been watching the market fluctuate over the past week.

We thought that we would take a few moments to outline some of the key points as to what has been happening with the market.

Firstly, it is important to remember that investment markets move in cycles and negative corrections are a completely natural and normal part of share market investment.

The panic being felt in China over its slowing economy appears to also be gripping global sharemarkets. Local stocks are at two year lows, but it should be remembered that the Chinese stock market is still twice the size that it was 18 months ago. Having said that, the Chinese economy is larger and far more complex now than it was 10 years ago, and therefore growth is likely to be slower as China adjusts to managing size.

The benchmark index the ASX 200 has now shed 17% since April, with August shaping up to be the worst month for local shares since the Global Financial Crisis

Overnight, the US stock market plunged 1000 points in the opening minutes of trading, but clawed back some losses to finish 588 points down.  While some traders are bearish about the stock market, there is a palpable sense on Wall Street that the “China made” downturn will not badly hurt the US; the US economy is growing, unemployment is dropping, home building picking up and consumer spending improving.

As reported in the Australian Financial Review today, Raymond James chief investment officer Jeffrey Saut, who manages about $US500 billion in assets from Florida, said the US stock market would not implode, arguing it was still in a bull market. “We do not think this is a crash, it’s just a normal 10 to 12 per cent correction,” Mr Saut said.

UBS Wealth Management global chief investment officer Mark Haefele also said investors should brace for further volatility, but in developed markets the bout of risk aversion should pass.

“Despite the ongoing weakness in some emerging markets, especially China, Brazil, and Russia, domestic drivers in the US and Europe have not deteriorated significantly and we expect growth to remain on track in these economically larger regions,” Mr Haefele said in a note to clients on Monday.

What’s happening in the World?

Greece – still remains a concern
Turkey, Vietnam, China have devalued their currencies
China – a correction is likely with a ‘hard’ landing the most plausible outcome. This correction is due in most part to a growth slowdown.
Australian sharemarket – down circa 17% since April ‘15
Commodity prices fall due to slower Chinese growth
US Federal Reserve still silent on likely interest rate hikes

What can Australian Investors do?
-Don’t panic!
-Carefully review your portfolio, share exposure, borrowings, debt levels, etc (with your Financial Adviser)
We see this as a correction, and not a collapse – look at the Shanghai Index chart attached and note the exponential growth. Surely, this should correct sometime?

24-08-2015 3-25-39 PM

Maddern Advice:

Call us on 03 9999 7200 for a discussion, or ask your Adviser for a review.


The information on this site is of a general nature only. It does not take your specific needs or circumstances into consideration. You should look at your own personal situation and requirements before making any financial decisions.

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