All of you, by now, probably would have heard information or news in the past few weeks about increased market volatility, the slowdown in China, and downward pressure being felt by multiple markets.
What do you need to know about this complex and evolving situation? And do you need to be worried at all?
The main thing to keep in mind is that, while it is true that markets seem to be taking a hit, the global economy remains relatively stable. Larger economies such as those of Europe, Japan, and US are all in recovery mode. Even though the Chinese economy is slowing down, it is expected to keep growing at 5% in real time. It is also important to remember that economies that seem to be seeing actual recession, such as Russia and Brazil, are too small to have that much of a significant impact on the world economy.
It is generally thought that the overall volatility of the market will pick up nearer to the first rate hike from the US Federal Reserve. In the meanwhile, prudency is key – siding with shares over bonds for instance.
How about the future?
Though the flavour of the season seems to be ‘caution’, it is also true that not everything is looking down. Despite the turbulence, common opinion is there will be an uncontrolled drop in the Chinese markets, especially because the Chinese government has the ability and are also showing the inclination to cushion its economy. At the same time, most experts also expect to see some positive changes in the US markets. Post a slow start in the beginning of 2015, the US economy has seen healthy employment growth and a pick-up in the broader economy. An expected 2-5% growth of the US real GDP growth should give a push to others globally. It is also important to add that the markets in Europe, Australia, and New Zealand– though seemingly bumpy at times – should show steady improvement.
So what should you do now?
The best answer to that is: avoid any knee-jerk reactions to the volatility. If you have questions or want to clarify how this applies to you, don’t hesitate to contact us now.