BNZ’s Head of Wealth and Private Bank, Donna Nicolof, answers your questions.
At the time of writing, share markets have experienced increased volatility as investors fret about the potential for a significant slowdown in China’s economy, and the expectations that interest rates in the US will increase for the first time in over 8 years. While it may be unsettling to think about how this could be affecting your investments, it’s important to remember that market volatility is a regular, indeed normal, part of investing.
This is the first significant period of volatility we’ve seen for some time and it comes on the back of many years of strong gains from share markets. If you are a long-term investor, you’ll be able to ride out these periods of increased volatility. We would also caution that if you change your investment strategy or approach now, you do risk ‘locking in’ any short-term weakness in financial markets.
The BNZ KiwiSaver Scheme funds that invest in growth assets, like New Zealand and overseas shares, are well diversified and professionally managed. All of the BNZ KiwiSaver Scheme funds also hold a proportion of their investments in lower-risk assets, such as bonds and cash, and these have helped to cushion some of the recent short-term weakness in financial markets. I have every confidence in the investment managers that we’ve chosen, and their ability to manage risk effectively, and take advantage of opportunities that may present themselves, over both the shorter term and longer term.
If you’re worried about your investments, have a read of the following Questions & Answers. I hope they will help to put some perspective on things for you.
What has happened?
After a prolonged period of strong returns, share markets are experiencing a reset. This has been expected for some time as financial markets can, from time to time, run ahead of themselves.
What prompted it?
The catalyst for this reset has been China, which is now the world’s second largest economy. Strong economic growth in China has been a key driver of global economic growth, particularly since the GFC. Recently the Chinese government has been trying to reform its economy, shifting it from a global manufacturing powerhouse to a consumer-led growth economy. However, investors have become concerned about China’s ability to smoothly make this transition. The recent devaluation of its currency (the yuan), and the release of weaker-than-expected export and manufacturing data, has played on investors’ minds.
While investors are well versed in the idea that China’s rate of economic growth is slowing, a key driver behind recent market movements relates to investors’ concerns that China’s economic growth might be slower than expected. Also, in the back of their minds is the fact that some markets appear expensive following a number of years of strong gains, and pending the first increase in US interest rates in over 8 years.
Should you be worried about recent market movements?
We don’t see recent events as overly concerning for long-term investors, and we don’t believe it’s the start of another global financial crisis (GFC). The global banking system is in a stronger position now than it was before the GFC. Economic data elsewhere in the world looks to be improving, with the US economy growing steadily, and the European and Japanese economies in recovery mode. Let’s also remember that although China’s economy is slowing, it is still growing significantly faster than many other economies.
What should you be doing right now?
The key message I’d like to get across is to maintain a long-term perspective. Making changes to your investment strategy now could mean that you risk ‘locking in’ any short-term weakness in financial markets.
By maintaining a long-term perspective, you can look at recent events in the following way:
- Financial markets don’t go up in a straight line and, as such, do require a reset from time to time. This encourages buyers back into these markets, and is a normal part of investing.
- You’ve likely made some strong gains over the last few years and recent market movements should be viewed in this context.
- If you are continuing to make contributions into your KiwiSaver account (for example via your salary/wages), then at current market levels you may be investing at lower prices than in the recent past.
What should you do in the meantime?
It’s important not to dwell too much on the attention-grabbing headlines we’ve seen over the last few days. Yes, there has been increased volatility and uncertainty in many markets around the world. However, it’s important to keep things in perspective.
Now’s the time to stay the course and be resilient. You should remember that your portfolio is well-diversified, meaning that it will provide you with some protection from any short-term weakness, and that our investment managers will be looking to take advantage of any resulting investment opportunities, as they arise.
This article is solely for information purposes and is not personalised financial advice. We recommend that you seek advice specific to your circumstances from a financial adviser. None of BNZ Investment Services Limited, Bank of New Zealand or any other person accept any liability for any loss or damage arising out of the use of, or reliance on, any information in this article.