With local markets initially reacting to the unrest within the Eurozone, more specifically, Greece’s level of debt, they’re now hinging on impending decisions by the Chinese government and the US Federal Reserve.

There is no doubt that the Chinese economy is contracting with softer economic data out of China leading to widespread concern that this could be a hard-landing. Chinese officials have stated that they’re redirecting their focus from an export-driven, low cost manufacturing economy, to a consumer-driven economy. The challenge therein lies with the Chinese government and how they’ll control this contraction to avert the hard landing. Furthermore, many fear the lack of control the Chinese government has over this change and the transition may indeed be as feared.  

In the US, the Federal Reserve is expected to increase interest rates at some point this year. Whilst this can be seen as a positive indicator for the US economy, the uncertainty around timing and the level of the increase has international markets worried. If there’s one thing share markets don’t like, its uncertainty.

So is this a market correction or something worse?

Hewison’s view is this recent volatility is a correction and not a pre-cursor to another Global Financial Crisis (GFC). On the whole, the Australian share market is not grossly overvalued and we are not seeing the euphoria that accompanied the period prior to the GFC, where hunger for shares was rampant and it seemed almost everyone was doling out stock advice.

Share markets often experience corrections, and sharp falls of between 5 per cent and 20 per cent are quite normal. They help the market readjust.

Understandably, no one likes to see the value of their investments decline, which is why it is important to remember to structure your portfolio for the longer term. If you buy quality investments and hold them for an extended period, you will be less concerned about short term fluctuations. Couple this with regular rebalancing of a portfolio back to its asset allocation, and reliable cash flow, and you should find yourself in the position of being able to ride out the days’ markets movements, regardless of their nature.

The information provided above is general information only and individuals should seek specialised advice from a qualified financial adviser. Please contact Hewison Private Wealth for more information.