World markets (& investors) love growth, but hate uncertainty
No country can keep up a 10% growth rate and sure enough, China has now slowed down to a predicted 6.5% growth in 2016. One might well ask what’s wrong with that?
- Millions of workers invest billions into markets every month via wages / super schemes
- Many investors are passive and just sit tight
- We hold steady and rebalance as and when needed
- Active managers, margin traders and nervous nellies are constantly second guessing and trading
It is the last group that create the volatility, and in some ways they are like spoiled children, when they can’t get the steady growth and certainty that they want, they throw a tantrum.
UK investment bank RBS has told its clients to brace for a ‘cataclysmic year’, warning that major share markets could fall by 20% and oil may sink to just US 16 a barrel.
JP Morgan has told clients to ‘use any bounce as a selling opportunity’.
A sceptic might say scary comments are a great sales strategy from big name companies as they get investors’ attention (fear), and then they make money out of them, whether they are selling or buying.
The IMF predicts overall world growth of 3% in 2016, not too bad.
PWC published predictions for many economies for 2016 – subdued in some cases but not at all bad.
Russell Investments said there are positive economic trends, and the US, Europe and Japan should achieve trend-like growth in 2016. They say the next recession is still not on the radar.
Harbour Asset Management said the world is set for moderate growth overall in 2016, there is potential for positive US surprises, and no sign of a US recession.
Falling oil prices should see higher consumer spending and provide a boost to growth. Central banks may also come to the rescue, lowering interest rates yet again – which usually has the effect of boosting growth.
On the other hand, volatile and falling markets make investors less confident and they can turn from optimists to pessimists in short order. That could see consumers decide to keep their hands in their pockets rather than spend their hard earned.
Motley Fool also pointed out that the depths of the GFC (March 2009) proved to be one of the best times in recent history to buy shares as markets plunged. If markets dip further, they could be littered with bargains giving long-term investors the opportunity to buy low.
The best strategy for long term investors
- Ensure you hold a well-diversified portfolio of quality assets
- Don’t buy on euphoria, or sell on bad news
- Buy in gloom if you can
- If in doubt, do half
- Use disciplined rebalancing i.e. taking profits on rising markets (selling at higher prices)
- Rebalance if markets are falling (buying more shares when they are cheaper)
- Remember there is no free ride
- You can’t get more than a bank will pay without a price
- Assuming you hold quality assets and are diversified, that price is volatility
- If you hold higher risk assets and are not diversified, the price may be real loss
- The media is the investor’s nemesis, so don’t react to it
Global recession watch
Having lived through 2008 and 2009, we would love to be able to predict the next one, indeed who wouldn’t? If only it were that easy.
If anyone tells you he/she can accurately pick when to get out, or to get in, run away (fast).
Meanwhile the growth rates supplied by PWC look subdued in some cases, but not at all bad.
We don’t like property prices being so high globally, which happened in 2007 too.
Governments and Reserve Banks are working very hard to keep global economies on a growth path, and will continue to do so.
The USA is still the biggest economy by far, it looks sound and employment is strong.
Most commentators live in the Northern Hemisphere and it is winter there - cold, gloomy and 18 hours of darkness daily. Hence it is not surprising that they are in a sombre mood – we get it every January.
US shares are getting high, but not so much now.
Low oil prices hurt some, but help a lot of others.
Keep watching and use common sense.
Supplied by Alan Clarke, financial & retirement adviser, & author.
His 2nd book “The Great NZ Work, Money & Retirement Puzzle” is available on line.
Alan is an independent authorised financial adviser (AFA) FSP26532.
His disclosure statement is available on request and free of charge.