The past six months have seen an increase in market volatility to levels we were more used to seeing in the early years of the decade. We have witnessed a global market drawdown since the peak in January 2018 and this has inevitably affected values across all portfolios. Market peaks often give rise to a certain amount of “selling off” as short-term investors choose to take their profits, but this is clearly not the full story. The recent market downturn cannot be pinned down to a single cause and some of the factors affecting market volatility have been:
- The threat of a trade war between US and China. China impose higher tariffs on US imports than other major trade partners of the United States. There are also concerns about China’s lax approach to the protection of intellectual property rights. This is an area of global trade policy that the current US administration appear determined to tackle. China have responded in-kind to increased US import tariffs and the war of words has intensified. Trade wars are seldom good news for companies engaged in international trade and markets responded by falling sharply in the US and Asia.
- Inflation, wages and interest rates. Across developed economies and particularly the US, strong employment data and increasing wages have led to fears of inflationary pressure and faster than expected interest rate rises.
- Trouble with tech. The emergence of the Facebook/Cambridge Analytica story has led to a general fall in tech stocks as the lifeblood of these companies, i.e. the ability to gather and sell user data, looks set to be curtailed. The share price of online sales giant Amazon has also fallen amid criticism of the tax practices from President Trump.
- Continuing uncertainty surrounding Brexit. With less than a year to go until we leave the EU, negotiations continue to finalise the terms of our departure. The UK economy has lagged behind the global growth curve for some time and this seems set to effect UK share prices at least until a deal is arrived at.
Despite these factors, the general consensus amongst economists remains that the outlook for steady global economic growth is positive. Investing using a fully diversified multi-asset portfolio, properly aligned with your attitude to risk, gives you the best chance of generating a return in as wide a range of market conditions as possible and will also ensure that you are in the best position to benefit when markets recover.