Beware the stillness of March
March's relative calm should not be viewed as the end of stock market volatility, Instreet Investment managing director, George Lucas, believes.
Lucas warned investors that the stormy conditions experienced by investors in January and February were likely to continue as the US earnings season gets underway next week.
"Earnings have already been revised significantly lower and priced into the market in late January and early February," he said.
"However, markets could still respond negatively."
Luas attributed the decline in volatility over the last month to central banks' monetary positions and the impact of currency fluctuations.
"The slight drop in volatility was driven by a number of factors including expectations the US Federal Reserve will be slower to cut rates than was originally thought in December 2015.
"Also coming into play were announcements from the European Central Bank, the weaker US Dollar and stabilisation of the Renminbi.
"Stability in the Renminbi has reduced fears that China may devalue. Capital flows out of China have also eased as foreign investors are pulling money out of Chinese securities and Renminbi deposits at a slower pace. Hopefully this indicates that foreign investors are less bearish on China.
"We also need to remember that Chinese firms paying down offshore debt were responsible for a lot of the outflows during the past year, which is not necessarily a bad thing.
"The US Dollar, whilst weaker overall, did experience a rally to recoup some ground against the Euro, Yen and Renminbi.
"The rally has put pressure on commodities prices again, bringing an end to the recent rally in oil, for example.
"There is a lot of data due out of the US this week, which will be closely watched to see if it supports the Fed's recently dovish stance. "
AUTHOR
Nicholas O'Donoghue
Recommended for you
Lonsec and SQM Research have highlighted manager selection as a crucial risk for financial advisers when it comes to private market investments, particularly due to the clear performance dispersion.
Macquarie Asset Management has indicated its desire to commit the fast-growing wealth business in Australia by divesting part of its public investment business to Japanese investment bank Nomura.
Australia’s “sophisticated” financial services industry is a magnet for offshore fund managers, according to a global firm.
The latest Morningstar asset manager survey believes ETF providers are likely to retain the market share they have gained from active managers.
