Markets sold off last night capping off what has been a poor month. A range of factors is at play but we think the relatively full valuation starting point combined with rising bond yields has triggered a reassessment of those valuations. At the same time nervousness regarding China's growth rate, US ability to handle interest rate increases, extended trade war between the U.S. and its trading partners, particularly China, Brexit and the political rhetoric leading into November US mid-term elections have all created a climate where investors have rushed to exit some previously popular trades.
Such market dislocations are a time for a calm head. Great opportunities emerge during these periods as sellers become less discriminatory. It can often represent an opportunity to buy quality businesses in the market at a discount. While there is a range of risks at present, we do not see the excess that existed pre-GFC, and as a result see the pullback as more of a long overdue valuation adjustment.
The challenge is that none of us really knows when these markets will bottom. It does however highlight the importance of not trying to “time” the market. Trying to move in and out of growth and defensive assets is fraught with danger. It’s important for your investment to be well diversified in line with your personal goals and objectives. By having your investments spread out across assets classes and different sectors means you are not running the risk of constantly chasing returns, you are riding markets through good and volatile times to achieve your ultimate goal.
It’s important that your investments continue to align with your personal goals, if your situation has changed or you would like to get some further information please don’t hesitate to contact your adviser.