News Articles
Select Article:  
Title: Market Update - October 2018
Created: 2018-10-11

Good morning all

This is just a quick email to update you on the market volatility that is happening at the moment. As you have read and heard the markets are becoming quite volatile due to a number of factors that I have discussed in previous emails. Those factors include rising interest rates, high valuation on technology stocks and a fast upbeat in American production. Adding all these together, there was always going to be a pullback in prices and this is now happening across the globe. Over the last three months the Asian region, together with other emerging markets, has been struggling with increasing interest rates in the USA. As most of the world borrows from America they are at the whim of what happens in the US economy. As I have reported, interest rates have been increasing and the dollar has been rising rapidly against the rest of the world including the Eurozone and Asia, so there has been a double hit to the size of the repayments these countries have borrowed due to cross rates increasing plus the interest rate of the debts. Due to this most countries shares have been falling over the last couple of months.

With rising interest rates the increase in repayments has finally filtered through to USA customers and because of this market sentiment has changed and hence people are opting out of the share market to the safe haven of Bonds, which have increased yields with the increase in interest rates. There is always ebbs and flows in markets and we are at a stage where people are becoming more cautious due to higher interest rates and you have to remember interest rates have not moved in the USA in the last 10 years post the GFC of 2008.

Another thing to remember is that due to lower interest rates over the last 10 years and all the new technology stock, the so called FAANG group; Facebook, Amazon, Alibaba, Netflix and Google plus Twitter, have grown enormously over the last five years. The main rise in the US indices has been due to these five stocks reaching incredible valuations. Amazon has reached the One Billion mark in company value. With such a large increase you can only expect a pullback at some stage and we are going to experience that in the coming months.

As you all know and will be aware in the past, October has always been a month for volatility, as everyone has come back from their summer breaks in the USA and company reporting is in full swing. At this point in time the volatility is going to affect earnings inside your funds for a couple of months. This is not new as it has happened before. We are expecting a pullback of about 4% for most growth funds and this will be due to international equities, especially those heavy in technology stocks. Most portfolios will have at least one of these technology stocks in their portfolio. We have done the research and only a couple of our funds are heavily weighted in these areas so the portfolios will be in better shape.

The Australian market over the last week has been falling due to slowing in the Chinese economy and this will be reflected in your portfolio already. Luckily, for want of a better word, Australia has not grown nearly as much as the American economy due to the lack of technology stocks so our volatility is going to be far less than other areas.

In summary, this is normal market volatility and not a major event, so expect a pullback but nothing that will not be over within a couple of months. I just wanted to let you know we have been aware of the coming instability in the markets and I am more than happy with your portfolios. We have done the research and the majority of you are in good stable portfolios but there are areas that will be more volatile so just expect a small pullback in your portfolios over the coming weeks which will be regained once the market stabilizes and moves forward once again.



  Home About Us Services Find Us