Investors jittery on market roller-coaster
Tracking the Australian sharemarket since the start of June, you could be forgiven for thinking you were looking at the design of Disney World's next big roller-coaster.
The local bourse has jumped 1 per cent, or more, on six occasions, and dived just as much another six times. Some of the moves have been more than 2 per cent. This week, it has moved 1 per cent or more every day.
The ASX volatility index (VIX), a measure of implied volatility on the Australian market, has jumped more than 17 per cent in that time, to 19.1 - hardly surprising given the events investors have had to deal with.
In May, US Federal Reserve chairman Ben Bernanke hinted the central bank may begin to wind back its $US85 billion ($93 billion) bond-buying program. Most of this money was being fed into financial markets at such a dramatic rate that, in April, Mr Bernanke took notice.
"In light of the current low interest-rate environment, we are watching closely for instances of 'reaching for yield' and other forms of excessive risk-taking," he said.
In 2013 alone, both the Dow Jones Industrial and the S&P 500 gained more than 17 per cent at their peak. The Australian market jumped more than 12 per cent before falling 7.4 per cent to now.
Despite the tapering of quantitative easing suggesting the world's biggest economy was in recovery, financial markets have been uneasy about having the money tap turned off.
"People are still unsure what the end of quantitative easing, or the withdrawal of stimulus globally, really means," Credit Suisse analyst Damien Boey said.
Australian markets have also been hit by China's shadow banking crisis. In June, interbank lending rates surged above 20 per cent as the People's Bank of China clamped down on loose lending practices. Rates have eased - as the bank reinforced it would remain the lender of last resort - but continue to weigh on investor sentiment.
The first four days of this week saw the VIX increase 14.5 per cent, fall 7.5 per cent, jump 12 per cent and pull back 7.3 per cent, an obvious sign that investors are jittery.
But despite the increase in volatility, by historical standards it remains low. At 19.3, the VIX remains well off its peak of 64 reached in November 2008 after the Lehman Brothers collapse.
Lower-than-average volumes have also contributed to the volatility.
July is expected to be focused on economic data, with local companies in blackout ahead of reporting season in August.