Further Market Update

In the US overnight the Dow jumped almost 4% to finish back above 11,000 points. This came after a  Federal Reserve announcement that its benchmark interest rate will remain near zero percent until 2013.

 The Australian sharemarket closed up on Tuesday afternoon by just over one percent after spending most of the day in the red. Thoughts are the initial fall of over 5% was triggered by margin call selling. Better than expected inflation numbers in China helped to turn that around by mid-afternoon.

Renowned US investor Wilbur Ross said he is buying assets as the global market declines are being driven by fear rather than economic reality. “Has the world really gotten 10, 12, 15 percent worse in the last 48 hours? I don’t think so,” Ross said. “Buying stocks at today’s prices over a couple of years’ time period will prove to be a uniquely rewarding experience.”

Given the level of uncertainty in the market, it is important investors hold their nerve and avoid being drawn into a panic. For most this mean sticking to the long term strategic plan. For investors that are now underweight equities, there may be further opportunities to rebalance towards blue chips stocks with attractive dividend yields and strong earnings.

2 comments

  1. It seems to me that the chaos of the last few days may be due to computerized trading. – the markets have all of the attributes of a system that is swinging wildly from one control point to another. It must also be due to large movements from institutional investments and it surely cannot be due to small investors like myself with investments in superannuation funds who have only small funds with which to play.

    1. Agreed Tony. Much of it was due to automated trading which can cause panic and then margin lending selling. We’ve seen very little movement across our clients in the past week on the sell side while those with cash have taken the opportunity to get in at a lower price.

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