JUST when we were getting used to the ''$X billion wiped off shares'' stories, along came a week that wiped $90 billion back on, but neither headline is particularly healthy.
JUST when we were getting used to the ''$X billion wiped off shares'' stories, along came a week that wiped $90 billion back on, but neither headline is particularly healthy.
Of course, most investors will happily take the wipe-on over the wipe-off, let alone the occasional wipe-out, but such extreme volatility speaks more of continuing nervousness and uncertainty than investment-inducing stability.
For all the relief of the week's relief rally, nothing much has really changed with the markets. We remain captives of dubious European political resolve and prey to more wild swings over the months ahead as the continent stumbles from one precipice to another.
The odds are that the Europeans will muddle through, that they won't be totally stupid given the knowledge of this crisis, but it's not going to be a quick process and it will be marked by more sharp falls and rallies along the way.
And then there's the US. While the Europeans stumble along, the Americans are bumbling from one economic indicator to the next with the focus on whether the country could be facing a double-dip recession. It matters less as it doesn't immediately threaten the global financial system, but it still chews up a lot of media coverage and Wall Street sentiment still holds disproportionate sway over the world's markets.
As it turned out, last week's American figures were mainly favourable, topped by Friday night's better-than-expected payroll numbers, but again the fundamentals haven't much changed. The US and Europe are facing an extended period of low or no growth as the world order changes and they collectively deal with their debt habits. Fortunately the developing world is picking up the slack, leaving the global growth rate about average.
The sooner that is generally accepted, the calmer markets will become, allowing investors to get back to trying to pick which companies will perform best. It is a less spectacular pastime than riding the roller-coaster of boom or doom, but considerably better for general health.
Within that general scenario, your columnist remains a rare fish as I'm happy for both the North Atlantic economies and our stockmarket to be flat.
The former because it helps make room for developing nations to live up to their name: to develop, to get their share.
Just as Australia's patchwork economy frees up resources in some industries and regions, encouraging them to travel to those industries and regions that need them more, the global two-speed economy prevents commodity prices going over the top.
And weaker developed nations encourage some developing nations to get over their tendency to depend on Western consumers' credit cards to pay for their growth. The world ends up stronger for the diversification.
As for our stockmarket staying down, that's fine by me as I'm still investing.
I hope to continue working, continue to put money into my superannuation, continue to add to a dividend-paying source of wealth.
Let the traders worry about stocks bouncing around, I'm happy for my super fund to keep accumulating shares in solid companies as cheaply as possible for as long as possible. Never mind the gyrations, see the opportunities.
Michael Pascoe is a BusinessDay contributing editor.
Frequently Asked Questions about this Article…
What did the article mean by “massive gains are not a sign of good health” in the market?
The article argues that very large weekly gains (or losses) often reflect extreme volatility and investor nervousness rather than underlying strength. For example, a week that put about $90 billion back into markets may feel comforting, but such wild swings point to uncertainty — not stable, investment-friendly conditions.
Should everyday investors panic when markets swing wildly from week to week?
No — the article suggests everyday investors need not panic. Short-term swings mostly reflect trader activity and headline-driven sentiment. The recommendation is to stay focused on long-term goals: keep working, continue contributing to superannuation, and add to dividend-paying or solid companies rather than trying to trade the roller-coaster.
How do European political problems affect my investments and market volatility?
According to the article, uncertain political resolve in Europe keeps markets nervous and prone to sharp falls and rallies. While Europeans are likely to 'muddle through,' the process will be slow and punctuated by more volatility, which can influence global investor sentiment and cause market gyrations.
Is the possibility of a US double‑dip recession something everyday investors should worry about?
The article notes the double‑dip recession debate drives media coverage and Wall Street sentiment, but it doesn’t immediately threaten the global financial system. Recent US data mentioned in the article (better‑than‑expected payrolls) were favourable, yet fundamentals haven’t materially changed. Investors should be aware of the headlines but focus on long-term positioning.
What is the ‘two‑speed global economy’ and why does it matter to Australian investors?
The article describes a two‑speed world where developed economies grow weakly while many developing nations pick up the slack. For Australia this helps by redirecting resources to where they’re needed and by preventing commodity prices from overheating. Diversification across regions and sectors benefits the global economy and can help stabilise returns.
How can I invest during periods of high market volatility?
The article recommends a steady, long‑term approach: keep contributing to your superannuation, add to dividend‑paying sources of wealth, and let your super fund accumulate shares in solid companies when prices are cheaper. In short, see opportunities in volatility rather than trying to time short‑term booms and busts.
Why might an investor actually prefer a flatter, less spectacular market?
The author says flatter markets are preferable because they reduce the boom‑or‑doom roller‑coaster and allow investors to pick solid companies sensibly. Calmer markets also make room for developing economies to grow and for resources and commodity prices to find a healthier balance.
Who wrote the article and what investing attitude do they advocate for everyday investors?
Michael Pascoe, a BusinessDay contributing editor, wrote the piece. He advocates a patient, long‑term investing attitude: continue working, keep adding to superannuation, favour dividend‑paying and solid companies, and avoid getting swept up in trader‑driven market gyrations.
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