AMP Capital

The past month has seen intense volatility, particularly across emerging markets, the banking sector and oil.

Video 1 - Market volatility: Causes, opportunities and outlook

Video 2 - Portfolio strategy and risk during market volatility


Part 1: Market volatility: Causes, opportunities and outlook

In this video we explain the reasons for market volatility and discuss what this means for investors.

Featuring: Jeff Brunton (Investment Director), Simon Warner (Head of Global Fixed Income), Sonia Baillie (Head of Credit Research) and Shane Oliver (Head of Investment Strategy and Chief Economist)

Global macroeconomic uncertainty has been a driver of volatility

Investment markets dislike uncertainty. There are three main areas of global uncertainty which have contributed to market volatility:

  • The economic rebalancing in China, away from an export-led economy to a consumption and services-led economy, has caused growth to slow
  • The United States economy has been one of the strongest economies in the world, but evidence of weaker growth as emerged over recent months
  • The global economy has fewer policy support options available in the face of slower growth - interest rates are already low and government debt remains high

Oil price weakness has led to wider credit market spreads

The significant fall in oil prices has negatively impacted global credit markets. There are concerns that the fall in oil prices will lead to an increase in debt defaults by energy and commodity issuers. This has seen credit spreads widen not only for the energy and commodity sectors, but across the broader credit market.

Turning down the noise and finding opportunities

It’s important to remember that markets do experience weakness and volatility through the cycle. We expect volatility is likely to remain elevated in the near term, but are seeing attractive opportunities emerge amidst this volatility.

Part 2: Portfolio strategy and risk during market volatility

In this video we explore some of the risk management techniques used to manage portfolios during turbulent times as well as the opportunities that this presents for portfolio strategy.

Featuring Jeff Brunton (Investment Director), Aaron Durkin (Global Head of Investment Risk and Performance) and Matthew Hopkins (Senior Portfolio Manager)

Risk assessment

In this uncertain environment, it’s important to limit the level of exposure to risky positions. We continue to be cautious in adding to credit risk in the current backdrop as the acceleration in volatility in financial markets continues. Our preferences for exposures are to defensive or non-cyclical industries, with strong fundamentals and solid earnings growth.

A time of opportunity

Volatility always throws up opportunities. When there’s stress in the market and investors are fearful, they tend to sell things – or are forced to sell things – often at more attractive prices.

From a portfolio strategy perspective this means:

  • Preparing for volatile periods: stress testing and scenario analysis is an essential part of active investment risk management, particularly during stressed market environments where market dynamics can be changing quite rapidly;
  • Adopting a rigorous investment process that’s repeatable: it’s important to be cognisant of valuations and sentiment in markets
  • Taking advantage of buying opportunities

Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.

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