After two years of strong returns, volatility in global share markets has increased recently.   Some of the factors contributing to this volatility include:

• Concern that the US Fed may increase in interest rates earlier than expected
• The possibility of deflation in Europe and debt worries for a number of countries
• China, while still growing, is starting to slow down
•  Geopolitical concerns in relation to the Middle East, Ukraine and Hong Kong
•  Uncertainty over the potential spread of the Ebola virus.

The combined effect of these factors has been a fall in markets worldwide, with the Australian market being impacted quite significantly.   After such a strong run a pullback in markets was not unexpected, and although it has taken longer to occur than anticipated we remain of the view that this is likely to be a short-term correction and not the beginning of a bear market.  Reasons for this view include the following:

• Share markets do not appear to be heavily over-priced on either a fundamental or relative basis
• Low interest rates look likely to remain in place worldwide for the foreseeable future, which is supportive for share markets
• Global economies are still growing, albeit slowly, with the notable exceptions being Europe and Japan 
• The G20 Finance Ministers recently re-affirmed their strategies to boost growth
• We have yet to see the type of investor euphoria which typically precedes major share market peaks.

In summary we do not believe this is the time to panic or to change your long-term strategy.   We understand that volatile markets can be a source of significant discomfort, and we will therefore continue to keep you up to date with future developments. 

If you have any concerns or would like to discuss this further please don’t hesitate to contact your adviser.