It’s difficult to ignore the current fear factor surrounding the market, largely driven by two factors; the US Federal Reserve’s decision to raise interest rates and a belief that the decision may have been premature, and concern around slowing economic growth in China and the increasing likelihood of a financial collapse.

China’s economy and its impact on the rest of the world is attracting the most attention, creating a division of opinions among analysts and experts. Markets are worried about a ‘hard landing’ scenario in China as a result of a massive build up in credit. Further, there has been a dramatic slowdown in fixed asset investment activity in China, and exports are weaker than before. Adding to the unease for investors is the negative commentary within mainstream media, which is painting a grim picture of the future.

In a recent investor update, Hamish Douglas, CEO of Magellan Asset Management which has $40 Billion funds under management, said that fears of a major financial crisis in China are overblown. He said investors should not expect a dramatic fall in the Chinese currency and that the Chinese Government, with the right policy, will avoid a “hard landing scenario.”

To put China’s construction boom into context he says, in the four years between 2010 to 2014 China consumed more cement than the US did throughout the 20^th Century and urges us to remember that:

• While fixed asset investments have slowed and exports are weaker, the services sector is growing strongly; wages have grown by 8 per cent and retail consumption has grown by over 10 per cent
• Domestic residents in China have been transferring funds offshore, which has led to a depreciation in the currency
• The Peoples’ Bank of China has been dipping into foreign reserves to prop up the currency, which should provide sufficient “firepower” ($3.5 trillion on foreign reserves) to offset the outflows. Therefore a large devaluation is unlikely.

As we have stated many times before, short term market volatility and uncertainty is unavoidable however, within reason, it is not a cause for alarm. To put this into perspective, it’s prudent to look at recent historical examples, such as the US Default and breakup of EU (both 2015), either of which has eventuated.

Clients of Hewison Private Wealth can rest assured knowing that we continue to management their portfolios according to a long term investment policy. The key is to buy quality assets and ensure you are never in a position where you are a forced seller.

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.