Market volatility looms in 2018

SHARES are heading for a volatile period this year, and investors and super fund members are being urged to plan how they will react.

A share market correction – technically a drop of 10 per cent or more – has been widely forecast for Australia and other countries after the surge in stocks in 2017.

When the inevitable drop happens, long-term investors should stick with their existing strategy – and not panic sell – rather than trying to time the market, finance specialists say.

Analysts have forecast a 5–10 per cent investment return from Aussie shares this year but say they will be more volatile than in 2017.

Our market is at its highest level since the Global Financial Crisis and many companies’ shares appear fully valued.

CMC Markets chief market analyst Ric Spooner said shares were more vulnerable to unexpected shocks now than they were at the start of the past two years.

“We could easily lose 10– 15 per cent without getting down into excessively cheap levels,” he said.

Global investment group AB has warned that Australian share price valuation ratios are about 10 per cent higher than their historical average, which “may be unsustainable and presage a correction”.

AMP Capital Investors expects Australian shares to end 2018 just 2 per cent higher than they are today. CommSec has forecast a 5–7 per cent improvement from current levels.

Australian companies pay investors the highest dividends in the world – about 5–6 per cent including tax benefits, and this income is historically resilient during share market downturns.

Catapult Wealth director Tony Catt said when shares fell, people should understand their reasons for investing.

Trying to time the market – by selling shares or switching to a conservative super fund option – could be costly.

CMC’s Mr Spooner said investors could defend their share portfolios from a fall by having a strategy in advance.

❝ We could easily lose 10–15 percent without getting down into excessively cheap levels. — CMC Markets chief market analyst Ric Spooner