Sharemarket Update
Many of us will have woken to the news this morning that
global markets had a very heavy sell off overnight following
generally weak markets over the last few months. The question
that most people are asking is what has caused this latest
correction in markets? The answer is a combination of fears
that the global economic recovery is stalling, along with the
concerns surrounding government debts, particularly in the
USA and some parts of Europe. This has resulted in many
investors taking any form of risk off the table, leading to
big selloffs in markets.
This latest situation needs to be put into perspective, and
could be seen to be a negative response to policy makers in
the US and EU. The market is telling the politicians that
they have it wrong. These politicians are facing very
difficult decisions, which will take some time to unwind the
debts they have accumulated and will have multiyear drags on
economic growth. The headwinds are significant. Corporate
balance sheets, however, remain in great shape, profits
remain very healthy in many sectors and valuations now look
to be as cheap as they have been since the market rebounded
off its March 2009 lows. This is the big difference from pre
GFC levels. Markets are not retreating from levels that were
deemed to be expensive. Profits could fall by 10% across the
market and valuations would still appear attractive.
The issue facing investors is where can I invest my money? In
the US, the flight is to US treasuries or bonds. Investors
seem happy to invest in a security that is paying them 0.25%
interest. Clearly, this will not be a long term phenomenon,
particularly given the credit agencies threats to reduce the
USA’ s rating. So once again we have sentiment or momentum,
rather than fundamentals controlling the direction of
markets.
The message we want to convey is that now is not the time to
panic. A rational investor would be looking at the many
opportunities available to them to invest in quality
companies paying strong dividends with solid growth
prospects.
If you have any questions or concerns, please or call
us.
The team at Altus Financial.