China's market roller coaster put into perspective
Hello and welcome to this month’s edition of Investment Insights.
The past few weeks have seen significant volatility in world stock markets which has proved to be a field day for the major media outlets. However, beyond the sensational headlines and full page spreads seen in the newspapers, should the average investor be worried? The short answer is a resounding no. To support this statement, we have put together a few articles that might help put the events of the past few weeks into perspective.
The first piece is from Jim Parker over at Dimensional, who walks through the long-term commitment required for investing and also looks at the returns delivered by the Australian market over the past 35 years, concluding that in the short-term, the greatest contribution you can make to your long-term wealth is exercising patience.
Our second piece comes from Barry Ritholtz, who put the recent falls in China (which appears to have led to the world-wide volatility) into perspective noting that, One year ago, the Shanghai Stock Exchange Composite Index stood at 2209.46 and is now at 3209.91. It closed last year at 3234.67 and peaked this year at 5166.35.
To put those returns into percentages:
One year: +45.28 percent
Year to date: -0.77 percent
Year to date peak: +60.95 percent
Peak to trough: -37.87 percent
So to some observers, the Chinese market is simply correcting itself back to a position that is more appropriate than where it had got to from some very exuberant enthusiasm!
Daniel Minihan, our Director of Wealth Management, has written a number of pieces about short-term volatility and the importance of focusing on the long-term including this piece from February (coincidentally at the time we joined our new Asian accounting network, ShineWing International) which concluded with the very sage advice of, So the next time the market starts to “wobble” be sure to re-read these pieces, take a deep breath, and stay invested. You may also want to have a look at a piece recently written which shows the meteoric rise and subsequent falls in the Shanghai market. This includes a graphical representation of the numbers above.
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