Volatility: beware the market noise

Following stellar returns from global equities in 2017, the recent fall in markets has seen the return of short-term uncertainty. But has anything really changed?

16 February 2018

While the current period of volatility is certainly not going to be the last, it is very unlikely we are witnessing the beginning of a complete market reversal. There have been a number of spikes in the Vix (a common measure of market volatility) since the post-financial crisis low for the stockmarket in early 2009; yet in the same time period, the S&P 500 has quadrupled (including the dip at the start of February).

The initial spark of the latest weakness – improving US wage data – led to worries about inflation and the prospect of faster interest rate rises (which is often viewed as negative for equities). Our view is that global economies are still in rude health and, following the drop, the equity market looks cheaper than it did at the start of February, offering opportunities for long-term investors.

In short, volatility has returned, but this can actually prove to be an advantage for bottom-up stockpickers. Our approach remains the same: we take a long-term view, based on our fundamental research, to identify high-quality companies that are producing attractive cash flow growth that supports sustainable dividends. Most importantly, it’s worth remembering the falls we have seen in company equity valuations over the space of a few days will not change the businesses’ operating performance – and keeping a firm eye on long-term fundamentals is in our view the best way to ward off sleepless nights.



IMPORTANT INFORMATION

This information is issued and approved by Martin Currie Investment Management Limited. It does not constitute investment advice.

Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested.