Monday, 24 August 2015

Market Slump

The Footsie is back to levels seen in 2009 at the time of the crash, is this just a natural correction for a high run or something more sustained?

China's economy, the second largest in the world, is not growing anything like as fast as it once was or international exporters had hoped. As a voracious consumer of commodities this has added to the rout and dragged down emerging market currencies.

The price of oil in the U.S. slipped below $40 a barrel on Friday for the first time since 2009 amid a growing consensus that cheap crude is here to stay. Oil investors and forecasters, who predicted early in the year that prices would recover in the second half of 2015, now say a rebound is unlikely before the second half of next year or 2017. U.S. government forecasters last week cut their oil-price estimates and see oil holding below $60 a barrel, on average, through 2016.

Recently there has been a switch to "risk off" trading and a rush to safe havens such as gold. Selling begets selling until something materially changes investors' views. So what is Risk-Off Trading?

Definition: Higher risk is associated with greater probability of higher return and lower risk with a greater probability of smaller return. This trade off which an investor faces between risk and return while considering investment decisions is called the risk return trade off.

When investors take more risk with their investments, they generally have the potential for, but not a guarantee of, a higher average return. For example, stocks which are very volatile in the short term, have historically produced the highest average annual returns of any asset class over the long term. By comparison, cash-equivalent assets, such as money market mutual funds and certificates of deposit, have less risk of loss of principal but generally pay relatively low rates of interest.

And finally Greece, we could not really leave this out. The impact that Greece has had on the markets is now becoming clear and begs the question should they continue to be funded?

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