As many of our clients are no doubt aware there have been two key financial events dominating markets since the beginning of the new financial year on 1 July. These events are the Greek situation and the selloff in Chinese equity markets.
In a nutshell, the Greek have taken on too much debt and will need to “restructure” or default on their debt. The Greek crisis has come to a head this week on Tuesday evening. After almost 17 hours of talks in Brussels, Greece and European leaders agreed on reforms needed to start formal negotiations over a third bailout program. So in our judgement, the real risk inherent in the Greek crisis is that it leads to investor concerns rising more generally. This in turn makes them try to reduce their equity exposures as they focus in on some of the more serious latent risks in markets today.
One of these risk being a China slowdown. The recent sharp selloff in Chinese equities may be the air coming out of a speculative bubble long in the making. Based on what we have seen and read we do not believe the recent sell off represents a systemic risk to either the Chinese or global economy. It is true a stock market decline of this level sets in motion a cycle that may feed on itself, damages investor sentiment and can take time to recover. The attached article by Dr Shane Oliver explains a good back drop to the situation in China.
Not that anyone can predict markets but like Dr Oliver, we believe the longer term effect is being controlled by Chinese fiscal policy and should not lead to a major financial issue. Chinese economic growth is still predicted to be around 7% this year.
Final thoughts, as always, when building portfolios is to keep a medium to long term view. Identifying the qualities and competencies of a fund manager in an asset class is one part of research, understanding what is happening in markets is another. Understanding the role an investment strategy can play in a portfolio is another. It’s important to construct a portfolio from our preferred fund managers, as we believe that they have the credentials to perform well through a full market cycle. We also need to understand the characteristics and exposures of the individual funds, and how these can be blended together to create a robust and diversified portfolio.
Lakeside can help you with any concern you have about your investments. Why not schedule a meeting with Gerry or Clae now?
Information current as at 17 July 2015
The advice is general in nature only. Before acting you should consider the appropriateness of the information having regard to your personal objectives, financial situation and needs.