Rushing to save shares from the market at the first dip may not be wise
World sharemarkets, neurotic as always, are down because growth in China has slowed more than expected - not stopped.
Media love to quote "billions wiped off markets" but to get a real perspective we need to look at percentages. Markets are down about 10 per cent, but a properly diversified balanced portfolio is down about 2 to 3 per cent, (after a couple of 10-plusper cent years).
It was reported that this will hurt KiwiSavers, but most are saving medium to long term, and adding money monthly (averaging in), meaning savers get more shares for their contributions when markets are weak.
The market volatility surprised me and seasoned traders. An Australian politician commented that it is "flighty money, moving continually from bonds to shares, forward and back, speculating on various factors" - he may be right.
World markets love growth, but hate uncertainty
China's major economic expansion boosted world confidence and sharemarkets, since markets love growth forecasts.
However, no country can keep a 7 to 10 per cent growth rate and China has now slowed down, much to the consternation of addicted watchers.
Jonathan Pain, a prominent Middle East and Far East student and commentator, predicts Chinese growth will fall 5 to 6 per cent, which is fine for a maturing economy. However, he also says China is all he is thinking about.
Main driver
The biggest global economy, the United States, is on track for a very good 3.7 per cent. So why all the fuss about China? Even a 4 to 5 per cent growth in China and 3.7 per cent in the US sound fine to me.
China watching became an unhealthy obsession but the country will keep growing, albeit at a slower rate.
The US is still the main driver and is growing at 3.7 per cent, which is very strong for a developed economy.
Germany is doing well as the euro suits them (weaker than a deutschemark would be, so it helps their exports).
The United Kingdom seems to be is doing well, some call it a mini-boom, as their 55-year-olds are now allowed to access 25 per cent of their pension funds (weird Government policy).
There is plenty of room for world growth, indeed, it has hardly recovered from the global financial crisis.
The huge emerging middle class in India and China will keep in demand global goods and services at a growing rate, which is great for sharemarkets.
The Chinese Government is fearful that the masses will rise against it. Hence, it will do everything to keep its economy on track for steady growth.
Not at all like 2009
The current "correction" is not at all like the 2009 crisis, which was initially caused by crazy lending on property, and a boom that attracted the greedy.
This situation has been caused by growth slowdown in China, which has upset world markets and is probably an overreaction.
Shares down - upward pressure on bonds
When markets are upset, the flighty money, the traders and the nervous nellies, will cash in their shares and look for safe havens - cash and bonds. However they can't stay there for long since most countries only pay 0 to 1 per cent cash and bonds 2 to 3 per cent (a tad more here).
They will be looking at re-entering the market before too long, seeking a better return.
Remember emotions affect markets, so they overshoot upwards on greed, and downwards on fear, but soon find fair value again.
Who has been selling their shares? Is it the nervous nellies selling? And are the professionals and the disciplined buying shares?
According to Harbour Asset Management, shares now appear attractively priced compared with bond and cash rates. The kiwi has an effect, too, as portfolios were boosted earlier this year, and then cushioned by the falling NZ dollar.
* Alan Clarke is a financial and retirement adviser, and author. His second book The Great NZ Work, Money & Retirement Puzzle is now available. He is an independent authorised financial adviser (AFA) FSP26532. His disclosure statement is available on request and free of charge.