An update on recent market conditions…

As clients will no doubt be aware from headlines in the popular press, we have recently seen increased volatility across worldwide markets. These market conditions have been driven mainly by uncertainty regarding the Chinese economy and we wanted to take this opportunity to update you on both the situation and your investments.

Whilst the reasons behind why markets ‘get spooked’ are always varied, in this case all signs point to a single culprit, with many individual problems conspiring against it: China.

The Chinese markets and the Chinese economy are both undergoing a period of change, during which the economic powerhouse is witnessing slowed growth and the inability of the government to impact the fiscal situation. The ruling party in China has both cut interest rates and allowed, for the first time, the main state pension fund to invest in the markets, along with a host of other measures, with each move having relatively little effect on their own economy.
This, in turn, has scared markets worldwide, as they see the Chinese government floundering and the market dipping. Again, the reasons for this are varied, but as China does the ‘leg work’ for many businesses worldwide, one element of the falls has been plain fear that a slowdown in the Chinese economy will have a knock-on effect on businesses in the UK, US and further afield.

1st-Chartered-graphHappily, because of the way we structure your savings and investments, your exposure to these falls has been much more limited than if you had just invested straight into the FTSE 100, for example.

The graph in this blog post shows the performance of the FTSE 100 over the last 12 months in yellow and the performance of one of our low-medium risk portfolios, similar to the one you are in, in blue.
As you can see, whilst our portfolio has still fallen a little, the drop has been nothing like as severe as the market as a whole.

This is because we reduce volatility to restrict the impact of the market declines by spreading your investments across markets, funds and asset classes. If one of these elements goes down (such as a fund which tracks the FTSE 100), the others help to mitigate that drop, reducing your risk and exposure to sudden market falls, such as the one we have been experiencing for the last week or so.

Many of you will have heard one of my favourite sayings: “it’s the downs that do the damage”! If you have an investment and it goes down 50%, it has to go back up 100% to get back to where it was. If you can restrict that drop to even 20%, then it only has to go back up 25% to get back to where it was. It’s exactly this sort of situation that our portfolios are prepared for and exactly why your assets are currently not experiencing the same drop as others around the world.

We’ll be sure to keep you updated with any further news as we have it on either the markets, the Chinese economy and your investments..