Learn To Invest
Stocks Special Reports LICs Credit Funds ETFs Tools SMSFs
Video Archive Article Archive
News Stocks Special Reports Funds ETFs Features SMSFs Learn
About

News

A behavioural minefield for investors

Morningstar  |  12 Apr 2018Text size  Decrease  Increase  |  
Email to Friend

The start of 2018 has proved to be a behavioural minefield for investors. Like most of 2017, investors are grappling with a backdrop of trade tensions, political instability, rising interest rates, and a mature business cycle.

Yet, perhaps of more importance, investors are now also questioning their own unbounded optimism and recognising that markets won’t always go up.

What is interesting is that the market setback in the first quarter came at a time when the fundamentals remained intact. Corporate earnings continue to rise in the majority of instances and default rates remain low. Hence, the unwinding of performance appears more complex than an unassuming turn in the business cycle.

In this regard, fear-inducing headlines were not hard to spot, with Donald Trump’s threat of a trade war beginning to materialise.

Export-oriented markets began to suffer alongside the US, with multinational corporations in Germany, Japan, and the UK selling off on the back of this news.

Even at a sector level there has been little respite, with deteriorating performance across the board. Interestingly, emerging markets were among the most resilient, presumably due to a combination of cheaper valuations and a market composition that is increasingly focused on domestic growth.

Elsewhere, a combination of rising interest rates and widening credit spreads--especially in the US--have boosted bond yields from historically low levels. This shift is meaningful, as fixed income and equity markets have shown similar vulnerabilities under this development. The impact was felt most during February and March, with inflation-linked bonds and corporate debt failing to add any value over government bonds.

In contemplating the chain of events, the impact of currency must also be considered. For instance, the US dollar weakened against sterling during the March quarter, dragging on local returns and influencing risk management.

Moving to the longer-term outlook, it could be tempting to attribute the recent market falls to a single factor and extrapolate some form of future expectation. For instance, a trade war between the US and China is a scary prospect with no clear winner.

Inevitably though, the market will redirect its attention to the difference between price and the underlying fundamentals.

More from Morningstar

• 9 technology themes investors should be following

House price declines not fatal for Australian banks

Make better investment decisions with Morningstar Premium | Free 4-week trial

 

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

© 2020 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

Email To Friend