Global financial markets have been recently experiencing heightened volatility. On 2 and 5 August, share markets around the world fell sharply, with the Japanese equity market losing 17.5% of its value over these two days.
Two main events precipitated the share market weakness. Firstly, the Japanese Yen strengthened after the Bank of Japan surprised markets by raising its interest rate on 31 July to around 0.25%. This caused some unwinding of the popular Yen-funded carry trades, where investors borrowed cheaply in Japan to fund higher-yielding investments. As some investors withdrew from their positions in investments such as Japanese and US shares, global stock markets fell.
Secondly, recent US macroeconomic data were weak. For example, the unemployment rate rose 0.2% to 4.3% in July. This triggered concerns about the possibility of a US recession commencing soon, resulting in some investors selling risky assets such as shares.
The combination of the interest rate increase in Japan and increased concerns about US recession resulted in panic selling by investors. The VIX, also known as the “fear index”, spiked to its highest level since the start of the pandemic. Big US technology companies, such as Alphabet, Apple, Meta, Microsoft, and Nvidia, which had seen substantial increases in their share prices leading to high valuations, experienced significant declines.
At the time of writing (8 August), share markets have partially recovered, but volatility remains elevated. We expect that volatility over the near term will remain greater than normal. A key issue for markets is whether the US economy experiences a recession. While most analysts are more concerned about that possibility now, the majority still anticipate that it will not occur.
Investment advice
We understand that the recent falls in equity markets may be disconcerting. At these times, it is important to keep in mind that your superannuation is a long-term investment. If you are thinking about making any changes to how your super is invested, we recommend that you get financial advice. With Vision Super, you can receive advice on which investment options are best suited to you at no extra cost from a Vision Super financial planner on your Vision Super account.
To book an appointment with a Vision Super financial planner, complete the online form or call the Contact Centre on 1300 300 820 (Monday to Friday 8:30am to 5pm). If you need more complex advice, fees do apply, they will be discussed with you before any work is done.
