It is always difficult to write for a weekly business magazine when it comes to reporting on share market corrections.
By the time our readers actually pick up a copy of Investor Weekly the world will have moved on. No sooner has Investor Weekly published dire predictions about global stock market collapses and the end of the China boom, than we find markets are already back at record levels. It is a sign of the volatile world we live in.
In the case of last week’s global share market corrections it is widely felt they were long overdue. Australian investors woke up last Wednesday to witness what seemed a global stock market meltdown, prompted by a 9 per cent drop in the China’s benchmark Shanghai Composite Index – its biggest daily percentage fall since 1997.
The US Dow Jones industrial average fell 3.29 per cent on the news – its biggest fall since the September 11 attacks of 2001 – and the UK’s benchmark, the FTSE 100, fell 2.3 per cent.
In Australia, the All Ordinaries index plunged almost 3 per cent on Wednesday morning trading, driven down by nervy profit takers looking to cash in on their resource stock exposure.
The consensus in the market, however, is don’t panic.
“I think the correction is a positive. It will enable super fund investors to buy a bit more sanely,” investment specialist and founder of Huntleys’ Newsletters Ian Huntley said.
“I can’t see that a China stock bubble being pricked is the end of the world.”
He added the correction could be what is needed to take the “dangerous parabolic rise” out of the market.
Colonial First State head of investments Hans Kunnen agreed. He said global markets could be doing a repeat of 2001, where the market had run ahead of itself.
“All I would say is remember May and June last year. Everybody thought it was the end of the world then. When the markets fell by 10 per cent there was a similar wobbling of the knees,” Kunnen said.
He added the fall in China’s markets by no means meant the end of the boom. “The economic fundamentals in China have not changed. It was a market that ran ahead of itself last year with rampant growth and needed squashing,” he said.
“China’s growth is based on structural change that will last for decades. People are making erroneous linkages.”
He said despite Alan Greenspan’s dire predictions last week that the US could be going into a recession, it was more likely the US economy was slowing down rather than stopping altogether.
“Yes the day traders might have been smashed, but they need a long -term perspective. Japan and Europe are growing, yes the US is slowing, but that is not the end of the story. This is a buying opportunity,” he said.
It seems the world is not coming to an end after all. But what would I know? By the time you read this editorial last week’s share market correction will either be long forgotten or perhaps, more worryingly, just the start of things to come. Has anyone seen my crystal ball?
