Market Volatility – What’s Next?
What’s Been Going On with the Stock Market?
Many investors have been notably shaken by the recent volatility experienced in global economic developments and the direct impact on the stock markets and investment portfolios. These impacts have been felt across the international community including such primary investment instruments as stocks, commodities, and mutual funds. What everyone wants to know is what is really causing these scenarios, how long it will last, and what actions to take as a result.
Key to the recent shaky ground in financial markets is the slowing economy of China. As China represents the world’s second-largest economical force such a reduction in momentum generates a ripple effect throughout the global financial marketplace. Chinese shares have dropped dramatically over the past couple of weeks and the continuing struggle leaves analysts and investors alike concerned that the slide has not yet subsided.
Other Asian markets have experienced similar drops with Japan’s factory production slowing and Tokyo analysts noting weaker economic results than anticipated. This is partially due to the reduced demand for exports to China as those markets shrink with the economic news. South Korea similarly is impacted by the Chinese slowdown in the same way. Even Australia is experiencing weaker results as experienced by the entire region.
What is the Outlook?
TheStreet.com reports that some analysts are predicting that the slide is not over yet. According to Wells Fargo Advantage chief portfolio strategist Brian Jacobsen investors in the stock market will want to prepare for additional volatility for the next few weeks. Jacobsen noted that small and mid-cap stocks still appear to be attractive along with B2B and emerging markets, apart from markets with political volatility that would include Turkey and Brazil.
Schwab puts forward some analysis that provides positive insight to China’s attempts to correct the direction of their economic circumstances. These include efforts to control the exchange values between the Chinese currency (renminbi) against the dollar, euro, yen, and pound. Chinese efforts to stabilize the economy are however viewed as generally positive.
Internally Chinese authorities have taken efforts to curb reports that could escalate the destabilization of the markets through the arrests of a journalist and stock market officials accused of spreading “rumours” that further depict the economy in a negative light.
BBC News analysis expresses concerns that the slowdown in the Chinese economy may be more of a sign that the economic boom they’ve been experiencing is now settling into a slower and more stable growth rate, although that may still impact markets negatively. This makes the question more a matter of whether there will now be a gradual slowdown or a “hard landing” with a more severe impact.
Over time there could be a more significant global impact due to the enormity of the Chinese economy and the associated reduction of imports. One example of potential impact is the smartphone market. As Chinese consumers’ demand for smartphones has experienced slower sales there is a direct impact on supplying countries and companies. This could potentially cause ripples through companies providing electronic repair parts and accessories. Even more impactful will be the lowering effect on oil prices and other commodities as Chinese demand slows due to their economic downturn.
What Should the Typical Investor Do?
Market investors truthfully have a fairly low percentage of portfolio values in Chinese stocks making the impact of lower Chinese stock shares relatively minor. This is a time to look at the big picture and evaluate stock investments on their own merit. Analyze your holdings for what impact global markets have on them. Results in the US and UK for instance are stable as are most developed countries. Global economies are performing well in spite of any Chinese impact – at least for now.
First remember that panic is not an investment strategy. In the US markets for example there have been a fair number of similar periods of volatility since World War II and the average time that passed to accomplish full recovery was seven months – hardly a financial disaster. Decisions that you’ve made on your particular investments were more than likely based on credible information and analysis. Unless the logic or information related to those decisions has changed significantly they are still valid choices. Rather than over-reacting to market fluctuations it may be your best course of action to hang on to your current investments while still monitoring them regularly.
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