Volatility may actually be good for traders

Don’t fear market volatility, instead be tactical about it — that’s the advice being given by market experts who spoke to Gulf News.

The CBOE Volatility Index, which measures the stock market’s expectation of volatility implied by S&P 500 index options, rose 26 per cent on Tuesday to 20.74, the pick-up having started in October.

However, the fear index is still 33 per cent lower than levels last seen in February this year.

“We think that [a] return of volatility is good for bargain hunting as good companies have now corrected between 15-25 per cent,” Rohit Nanani, founder and director of Arrow Capital, told Gulf News.

“Our mantra for now is to ignore the noise and focus on stocks which you always wanted to own.”

Analysts expect the volatility to linger for a few more months.

“More broadly, we are entering a new volatility regime. The years of quantitative easing and ultra-low rates drowned out almost all sources of volatility,” Karolina Noculak, investment strategist, Aberdeen Standard Investments.

“With the Fed continuing to raise interest rates and reducing its balance sheet, more volatility is inevitable.”

Analysts feel that the decade-long quantitative easing policies may have inflated asset prices, which are expected to find their new normal levels in an environment where there is a dearth of cheap money.