There has been a lot going on in global markets over recent months. It would be wise, and prudent, to keep on top of these global risk factors and their impact on your investments. It can be quite difficult to keep up with what is happening and understand what this means for your investments.
Initially the concern was about Greece and its ability to continue to meet its financial obligations. These issues have now been resolved and Greece will retain its position in the Eurozone. We are now finding the focus has moved to events in China.
The risk of China experiencing a financial crisis have increased due to high levels of debt at a local government level, to some extent at a corporate level and also at a household level. The risk of this growth in debt is compounded as China has relatively high borrowing costs. At the same time there has been a significant rise in property and share prices, over a short period of time. However, it can be seen that the cracks are starting to show. In late 2014, some apartment prices dropped by between 10% and 15%. In addition, over the past three months the Chinese share market has dropped around 30% from its peak.
Allowing for the current global risk factors, and assuming global growth does slow over the next 12 to 18 months, we see global and Australian equity markets at the high end of ‘fair value’. This means there is no reason for any real concern, just a need to take a slightly more conservative approach.
There is no doubting that the risks in relation to global issues have increased. With markets still within ‘fair value’ there is no significant concern of a bubble. It simply means the downside risk is slightly higher and there is potentially not as much upside left. You will find that equity fund managers, that have the flexibility to hold some assets in cash, are utilising this flexibility to lower the risk in their portfolio.
At Harvest, our approach in the current market is to lean towards being a little more conservative. We are looking to protect your downside risk in light of the current events and the investment environment. For our personal clients, we have been working with them to rebalance their portfolios to a slightly conservative position, based on their risk profile. For our superannuation clients, we have been helping them choose investment options that are less volatile. We have been taking this approach for a little while now.
If you would like to discuss the implications of these factors on your portfolio please contact us to discuss further. We can assist with developing an investment strategy tailored to your situation, or with the review of your existing investment strategy.
