First quarter of new financial year: Continuing market volatility

05/10/2011
Provided by Mercer. The information in this article does not necessarily reflect the views of the Trustee.

It's been a rocky start to the new financial year for investors. Over recent months we've experienced the most severe market volatility since the Global Financial Crisis in 2008. The ASX300 index has even sunk below the psychologically important '4000 point' mark.

Many members have asked us why local markets are so unstable when Australia's economic fundamentals are relatively sound. Besides the fact that international panic is somewhat - and sometimes irrationally - contagious in today's global markets, the reality is that concerns about the global economic climate are weighing heavily on Australian shares.

Uncertainty about China is having a significant impact on Australia. About 25% of our exports are sent to China, and most of those are commodities. Recently, the Chinese central bank has been using monetary policy to manage inflationary pressures. This is impacting the availability of capital to small to medium enterprises, and there has been a slight decrease in exports. While many observers are confident that the central bank won't allow growth to decelerate too rapidly, others worry that any slowing in the strong growth that's fuelled the Australian economy over recent years will hit us hard.

The Euro Zone debt crisis is also destabilising global markets. Most international banks are exposed to European sovereign debt - Australian banks recently confirmed that they have small holdings of bonds issued by Greece, Ireland and Portugal. Although Mercer is optimistic that a full-blown break-up of the Euro Zone will be avoided, we remain cautious in our outlook for equities.

During turbulent phases in the investment cycle even the most confident of investors will experience moments of worry. If you're unsure about your investment strategy - or if you have questions or concerns - please give us a call.

 

This information has been prepared by Mercer Outsourcing (Australia) Pty Ltd (MOAPL) ABN 83 068 908 912, Australian Financial Services Licence #411980. Any advice contained in this document is of a general nature only, and does not take into account the personal needs and circumstances of any particular individual. Prior to acting on any information contained in this document, you need to take into account your own financial circumstances, consider the Product Disclosure Statement for any product you are considering, and seek professional advice from a licensed, or appropriately authorised, financial adviser if you are unsure of what action to take. "MERCER" is a registered trademark of Mercer (Australia) Pty Ltd ABN 32 005 315 917. Copyright 2012 Mercer LLC. All rights reserved.

 

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