View on Market Volatility

Tuesday, August 25, 2015

August has been a very tough month for Australian and global investors. At the time of writing the Australian sharemarket is down over 10% for the month. It is extremely difficult to forecast where the market will go on a day to day basis as it is influenced by many factors - but what we do know is that panicked selling by others often creates opportunities for stock pickers like us who have a longer term focus.

There are a number of contributors to the current falls being seen. There is weakness in the Chinese economy which has undermined commodity prices including iron ore, copper and oil. The Chinese financial system has also been very volatile, with significant falls in the Chinese stock market after a steep rise in the previous 12 months fuelled by a retail stock buying frenzy.  The Chinese Government has been trying to bolster its market without success.  In addition the reporting season locally has been quite disappointing with many Australian companies providing muted guidance for the 2016 fiscal year and this has seen weakness across a broad range of stocks. In addition both ANZ and CBA are in the process of raising $8 billion of new equity at significant discounts in August and this has also depressed the prices of other stocks across the market. As many would be aware, we have been cautious on the banks given sluggish credit growth and increasing capital requirements.

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