Made in China?
In the last few weeks, investors have experienced some of the most volatile trading in the last 5 years.
There have been several factors in play, but most of the volatility has been surrounding China.
The Chinese economy is the second largest economy in the world (second to the United States). Over the past year, their economic growth as a percentage of its gross domestic product (GDP) has started to slow down somewhat, albeit still short of 10%, which is pretty amazing.
The slowdown in China’s economy has had quite a few ripple effects throughout the world markets. Investors see a slowdown in China as a potential cause for an even larger trade imbalance, which has especially affected Canadian exports. Canada is a large exporter of raw materials to the east, and this perceived slowdown has impacted many large producers of raw materials. Of course, this all affects the world markets in a big way, which represents a lot of volatility. China has also devalued their currency in an attempt to prop up their exports, and is overall very secretive with regards to their policy decisions. This is confusing and frankly very unsettling for many investors.
Oil, and OPEC
A major oversupply of oil, primarily fueled by the Organization of the Petroleum Exporting Countries (OPEC) has put a lot of pressure on producers in Canada and the U.S. A looming U.S. “deal” with Iran (which could bring on another 1M Barrels to the market) has also affected global oil prices and caused downward pressure on the commodity. To break it down, the world has too much supply of oil and not enough demand. Also fueling the global price shock is again the perceived slowdown in china.
So, what can I do?
Although many economists could write books on both of these subjects; and the fact that there are many other factors in play here, the point of this article is how it affects YOU, and YOUR money.
Over the past 5 years, global markets (we’ll focus on North American markets, the S&P, Dow, TSX) have experienced a ‘bull’, essentially an upward movement with very little correction. Some have called it a healthy market correction, while others have deemed this a capitulation (high volume, sharp declines). The market will historically “technically” correct every 7 to 10 years, which means we are long overdue in my eyes. Global economic uncertainty has helped to fuel this market volatility, but many economists are saying we could some healthy pullback in the markets, and the price of oil remaining in the $30-40 range for the rest of 2015 and into 2016.
Investors need to be mindful of their holdings in the stock market, and look at diversifying their portfolios to take advantage of opportunities both inside the North American markets, but globally as well. In addition, reallocation of investors’ portfolios to bonds and private equity will also help to reduce some of the risk investors may face in their equity holdings. Now is not the time to sit back and hope your current portfolio is well situated to ride out market volatility; it is important to sit down with your advisor and look at reallocating your portfolios to keep pace with the ever-changing economy.
If you already have an advisor that you work with and trust, meet with them on a regular basis and ask a lot of questions. Knowledge is power, and I firmly believe Canadians need to know exactly what is going on with their money on a regular basis. Get a second opinion! It never hurts to bounce ideas off of other financial advisors. We all have differing opinions based on market trends and where we think investors should be putting their money. Consider crystallizing (locking in gains) and using private equity investments to stabilize and diversify your portfolio. Some of the largest and most successful pension plans use private equity as a major allocation of their portfolios. Is your advisor licensed to offer you private equity investments? As Private Wealth Advisors with Raintree Financial Solutions, we are.
Contact me today for a free, no obligation review of your investment holdings. There are no costs for a second opinion and no pressure to transfer your holdings. I am proud to be a TRUSTED SASKATOON investment advisor, serving the community for over 14 years. Give me an opportunity to show you how you can supercharge your portfolio in this volatile market!