Investors ‘overreacting’ to market volatility

Taylee Lewis

Investors have overreacted to fears about a slowing Chinese economy and unnecessarily sparked a sell-off in equities around the globe, says Instreet.

Instreet Investment managing director George Lucas said investors’ reaction to the slump in Chinese equities has also been overdone.

“The selling, which was compounded by uncertainty around the [US Federal Reserve] interest rate move, spooked equity markets with the Australian market alone shedding $60 billion in market capitalisation on Monday,” Mr Lucas said.

“In addition, worries about new crises in emerging markets are exaggerated – this is 2015, not 1997. Those economies are far more robust.”

Mr Lucas said that investors are wrongly confusing the sell-off of Chinese equities with China’s real economy, indicating that the economic data of the latter is not weak enough to justify recent fears.

Moreover, My Lucas pointed out that the recent panic over China has led investors to conclude that the US Federal Reserve will be less likely to tighten monetary policy in September.

“Although revised predictions of a December rate hike are reasonable, commentators predicting more [quantitative easing] and looser policy look silly with US GDP growth revised up above expectations to 3.7 per cent,” said Mr Lucas.

“The market is still predicting that there is a chance of a September move, with two weeks of economic data to analyse; however the recent panic, and a fall in core inflation, [means] the case appears to be weaker than two weeks ago.”

“The Catch 22 is that uncertainty around the Fed’s decision is adding to the volatility in the market which could delay the decision,” he said.

InvestorDaily