It’s a wild ride so investors should strap in
MUM and dad investors should strap in for an ongoing rollercoaster ride as global market volatility becomes the new norm, a finance academic says.
Local investors are caught up in a cycle of overreaction and panic similar to during the global financial crisis of 2007- 08, Deakin University Associate Professor Victor Fang says.
“The perfect storm of Greece defaulting on its international obligations and a rapid meltdown of China’s sharemarket has knocked the confidence of Australian investors in a way not seen since the global financial crisis,” he said.
“People say ‘ but Australia isn’t paying Greece’s bills’ and ‘ I don’t invest in China’s sharemarket’ but the interconnectedness of global financial markets means we’re still impacted by what’s happening overseas.”
The local sharemarket has recently swung between massive falls and strong gains as debt- laden Greece looked headed for an exit from the eurozone.
A massive plunge on China’s mainland sharemarket, and a mixed response to government measures to stem the falls, is adding to the wild ride.
The trend continued yesterday, with the Australian market rallying after eurozone leaders finally struck a deal on a third bailout for debt- stricken Greece.
Although the new Greek deal reduces the risk of a “Grexit”, the country’s financial crisis remains a significant issue, IG market strategist Evan Lucas said.
“The deal has several very tough days and weeks ahead,” he said.
The Greek debt negotiations and China’s sharemarket crisis have dented consumer confidence.
“As long as uncertainty and fear rule, the roller- coaster ride will continue for Australian investors,” Prof Fang said.
But he and other market watchers say there is no need to panic.
David Bryant, the chief executive of Australian Unity Investments, has said these global events are unlikely to be as significant as they currently appear.
VOLATILITY RULES: The Australian sharemarket is on a rollercoaster ride but market watchers say there is no need to panic.