The past few weeks has seen a significant amount of market volatility. The initial drivers of the recent correction we have experienced have been due to the Greek debt negotiations and the Chinese stock market collapse. These Chinese stock market concerns have then spread to concerns over the economic situation in China, which we discuss in our July 2015 portfolio reports.
These concerns led to some steep losses in Australian and global share markets over the past week, however, with the US Fed all but declaring that US interest rates won’t go up in September due to the market and economic concerns we have seen a very strong rally since Tuesday (August 25th) this week.
In our view the concerns that China’s sharemarkets are a reflection of the state of their economy are false. This is not to say that we are not concerned about the state of the Chinese economy, as we have highlighted in recent Portfolio Report commentaries; however, the Chinese economy is still growing (albeit more slowly and with some challenges) and the sharemarkets are relatively under-developed and accessed mainly by retail (mum and dad) investors.
At the same time we do not understand the euphoria behind the delay in US interest rate rises in respect to the markets reaction in recent days.
At this time our diversified portfolios (VIP Conservative, Balanced, and Growth) are still underweight growth assets as we are concerned about volatility and risk. Furthermore, our growth asset portfolios are allocated towards defensive assets that generate strong income streams (i.e. bank and healthcare companies), and we currently hold no allocation to Mining or Mining Services companies and little allocation to Energy. Therefore we have limited exposure to falling commodity (e.g. iron-ore) and oil prices.
We are closely monitoring the securities we have allocations in and the broader market, and will continue to make changes to the portfolios in our aim to generate strong returns whilst taking lower risk than the market and our peers.