A balanced view on today’s global markets and your investments

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With recent reports on falling markets, it’s not hard to imagine you’d be concerned about your investments.
I’ve had a number of clients contact me, some asking whether this volatility is a precursor to another global financial crisis; some wondering how long we can expect market uncertainty to last. Interestingly, a select few have asked if it’s a good time to buy investments cheaply!
Getting a balanced view
Globally, the appetite investors have for risk has significantly fallen since late April, which has seen global sharemarkets fall by around 18% (at 9th August am).
For the most part, this has been a reaction to the building concern for the slow but sure spread of the European debt crisis and the recent US debt situation.
In both cases, the delay in action by policy makers has taken its toll. You’ll have seen in the news the political football that saw President Obama’s debt deal agreed on the last possible day.
In isolation, these media reports are disconcerting but there are a number of reasons I have confidence in sharemarkets.
While government debt is large, there are companies around the world fairing much better. In the US alone, there’s $1.5 trillion in cash sitting on company balance sheets.
These companies are less concerned about cutting costs and more focussed on increasing their capital expenditure.
And, thanks to the learnings from the GFC in 2008, banks are generally stronger, more transparent and the market has more certainty about where the banks are invested.
Because of this, I think there are some great opportunities for those with a medium to long-term time horizon.
What this means for your investments.
The Australian Federal Government continues to maintain its AAA credit rating and, although the economy has softened in 2011, we do have the benefit of strong export partners such as China and India.
However, we aren’t insulated from the global uncertainty and that's reflected in large falls in the Australian sharemarket too.
How your money is being managed is even more important during times of of global risk. Because of this, I’m in constant contact with fund managers to find out what they’re doing with your investment funds.
At a recent teleconference I attended, they described how they expect markets to remain jumpy for a while but they had increased their focus on investing in quality companies with low levels of gearing and strong cash flows. These companies would fare well even in this environment.
They also spoke of risk management strategies; areas they’re avoiding and how they’re testing different investment scenarios with various outcomes. The investment managers are finding opportunities they expect will deliver long-term returns for investors.
In summary, they were confident in the sharemarket for many of the points I’ve outlined in this letter.
There was caution around market growth. They expect it would be slow and volatile for some time, but this was quickly followed up by the statement that, even in this difficult environment, they see opportunity.
Any questions?
As always, I’d be very happy to meet or talk with you over the phone. Please call me on 02 9417 6011 or email me on info@tudorinvest.com.au.