International shares have spluttered recently thanks to worries about the looming threat of US inflation, more Russian sanctions, the defaulting Argentinian economy and the collapse of Portugal’s Banco Espírito Santo.
These worries combined in July to drag down global shares by 1%, while in the first week of August, US shares fell 2.7%, Eurozone shares fell 3.5% and Australian shares fell 0.5%.
The good news according to Shane Oliver, Head of Investment Strategy and Chief Economist at AMP Capital, is that the drop might just be a healthy correction rather than something more sinister.
“Having not had a decent pullback since January/February US shares (and hence global shares) had become vulnerable to a pullback,” said Oliver. We are also in the weakest quarter of the year for shares seasonally, i.e. its correction season. However, while it could have a bit further to go it’s likely to prove to be nothing more than a correction – say 5% top to bottom.”
Oliver justifies his position on the basis that: “Banco Espirito Santo’s situation is not indicative of other Eurozone banks; Argentina’s problems are well known and its “default” reflects a problem with a hedge fund rather than broader emerging market debt problems; tougher sanctions for Russia will harm it a lot more than the global economy and overall US earnings reports have been very strong.”
According to leading financial commentator Paul Clitheroe, despite the short term fluctuations, investing in overseas share markets delivers access to significant industry sectors like pharmaceutical, aerospace and information technology that are either unavailable or underrepresented on our local share market.
“The Australian share market is small by global standards, and if you only invest in companies listed on the ASX, you restrict your opportunity to participate in high growth regions such as South East Asia and China,” said Clitheroe.
It’s possible to invest directly in global shares through an online broker such as InvestSmart, or indirectly through managed funds.