Investors jittery on market 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.
Frequently Asked Questions about this Article…
Since the start of June the Australian sharemarket has seen frequent big moves — it jumped 1% or more on six occasions and fell by similar amounts six times, with some moves larger than 2%. The volatility has been driven by global factors such as hints the US Federal Reserve might wind back its US$85 billion bond‑buying program and concerns from China’s shadow banking problems, alongside lower trading volumes locally.
The ASX volatility index (VIX) measures implied volatility on the Australian market. It jumped more than 17% recently to around 19.1, signalling that investors are jittery. However, by historical standards that level is still low — well below the VIX peak of 64 seen after the 2008 Lehman collapse — so it reflects nervousness rather than crisis‑level fear.
In May, Fed chair Ben Bernanke signalled the central bank might start to wind back its US$85 billion bond‑buying program. That suggestion of tapering — even though it implies an improving US economy — made financial markets uneasy about the prospect of stimulus being withdrawn and contributed to bigger price swings and increased volatility.
China’s shadow banking worries pushed interbank lending rates in China above 20% in June as authorities tightened loose lending. Although rates later eased when the People’s Bank of China reinforced its role as lender of last resort, the episode has weighed on global and Australian investor sentiment and added to market nervousness.
Yes. The article notes lower‑than‑average volumes have contributed to the recent volatility. When trading volumes are thin, smaller orders can move prices more, which can amplify daily swings in the ASX.
Tapering of quantitative easing refers to the central bank reducing its bond‑buying stimulus. While tapering can signal an improving economy, markets have been uneasy about the money tap being turned off. The article highlights that uncertainty over the end of QE or global stimulus withdrawal has been a key source of recent market jitters.
During one recent week the VIX swung noticeably: it rose 14.5% one day, fell 7.5% the next, jumped 12% afterward and then pulled back 7.3%. Those swings show short‑term investor nervousness and rapid changes in sentiment.
The article says July is likely to be focused on economic data releases, and many local companies will be in blackout ahead of the August reporting season. Everyday investors should therefore watch key economic indicators and be aware that company‑specific news will start to dominate once reporting season approaches.
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