Reports of a volatile start to 2016 have been somewhat overstated, according to Morningstar associate director and research manager, Kathryn Young.
Young views the rough patch the equities markets have experienced in recent months as a correction more than a sign of volatility.
“Monitoring the data that comes out, I don’t think there’s anything more than a correction [going on],” she said.
“It’s not terribly surprising to see a rough market given global equities have been on such a tear for a solid few years, valuations, particularly in some areas have gotten to be a little elevated, so that just leaves markets more vulnerable to some bad news and uncertainty.
“The continued slide in oil prices, some shaky data out of China, some shaky data of the US – that was plenty to spark markets to correct a little bit.”
Brexit referendum
With a referendum scheduled for 23 June to decide whether or not the UK remains within the European Union (EU), uncertainty is expected to continue.
There’s likely to be concern that the UK might not be able to negotiate as beneficial exposure to the European economy from outside the EU as it can being inside the EU – Conrad Burge
While Tempo Asset Management principal, Joe Bracken, said the benefits of remaining a member of the EU were likely to sway voters to maintain the status quo, he warned investors that choppy market conditions were likely to continue as the referendum draws closers.
“A Brexit would have significant consequences, not only for the British Pound, but cause general disruptions for economic activity in Europe,” he said.
“You have to remember the UK is now basically exporting to a market of 500 million people – so for them to be hit with tariffs because they’re no longer part of the Common Market, that would significantly affect the UK economy.
“Indeed the Bank of England governor, Mark Carney, can’t really comment on these things because of his position, but it’s clear he thinks a British exit from the EU would have significant, and I would speculate, quite negative impacts on the UK economy, and it would have more of an impact on the UK than the EU.
“Either way the economic disruption and uncertainty would spill over into the financial markets and I think would significantly impact both the performance of the UK market and the EU equities markets if it were to happen.”
Fiducian investment manager, Conrad Burge, agreed that the result of the referendum was likely to cause short-term disruption to the markets, as investors speculate on the impact of a Brexit.
“There’s likely to be concern that the UK might not be able to negotiate as beneficial exposure to the European economy from outside the EU as it can being inside the EU,” Burge said.
“So if there’s any potential for it to affect UK exports to the EU, or the role of London as one of the world’s great financial centres, those concerns will be raised, and could affect [markets] in the short-term, until the situation is clarified.
“Some investors may lighten their exposure to the UK in the run up to the referendum.”
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