The market volatility both here and around the world may have clients nerves shredded, but on the whole, this period may represent nothing but a correction.
“At the moment, the investment team views the current correction to be just that... a correction,” says Henry So, senior investment product manager with Empire Life Investments. “Perhaps Canadian investors have been lulled into a false sense of security over the past few years, with very few corrections in major North American indices. However, corrections are part of equity investing.”
Client apprehension is understandable.
The global stock market volatility accelerated in recent days on renewed global economic weakness concerns. Continued economic and stock market weakness in China has received much of the blame for the recent volatility, with last week’s devaluation of the Chinese renminbi against the U.S. dollar, says So,. He characterizes the devaluation as an attempt by Beijing to boost exports – but also as a signal that the economy is weaker than official reports let on.
A preliminary estimate of Chinese manufacturing showed that activity contracted for the sixth month in a row, with the index at its lowest level in six years. Additionally, Chinese stock market volatility returned to extreme levels in recent trading sessions, despite government efforts to stabilize their markets.
That being said, So argues that investors should remain vigilant given the possibility of something more onerous on the horizon.
So sees equities as offering a more attractive opportunity compared to fixed-income, while maintaining an optimistic view on U.S. equities. The assessment is based on that economy’s relative strength in its domestic economy, healthy corporate earnings, and a currency that has exhibited defensive properties in times of investor risk aversion.