Should investors hit the panic button?

By Jonathan Jackson. Published at Jan 13, 2016, in Features

IBISWorld founder, Phil Ruthven believes the world has gone into an economic panic for nothing.

It comes on the back of the Royal Bank of Scotland (RBS) advising its clients to “sell everything” and brace for a “cataclysmic year”.

The broader sentiment is that while there is no doubt investors should take a conservative approach to their portfolios, and preserve capital, there is no need to make sell-off decisions based on fear alone.

The RBS has a history for giving poor advice. It was fined 15M pounds for bad mortgage advice in 2014 and was the subject of a law suit last year after being accused of allegedly miss-selling interest rate swaps.

The RBS aren’t the only financial institutions playing the doom card, however while most finance commentators aren’t playing down the seriousness of the current global market situation, they aren’t predicting an economic apocalypse either.

For instance, Ruthven believes 2016 will be better than 2015.

“2016 looks likely to be a better year than the one just closed, partly due to the recent FTA with China and the coming Transpacific Partnership agreement. The low Australian dollar will help, as will continuing low interest rates, and hopefully continued rises in consumer and business confidence,” Ruthven says.

Michael Pascoe isn’t necessarily as bullish but in his column in The Age today he makes the point that we shouldn’t necessarily trust extreme bearish advice.

Pascoe says, “At any one time there are numerous market forecasts around ranging from extremely bearish to overly optimistic. When markets are very volatile, the bearish forecasts become more extreme and the most extreme can be expected to get the most attention. Bad news sells.”

Which shouldn’t be a trigger for investors to sell their stocks – mums, dads or otherwise.

Deakin finance Associate Professor Victor Fang has warned mum and dad investors to brace for ongoing volatility in global markets as panic selling continues to drive shareholders toward the equity exit doors.

“For as long as uncertainty and fear rule global equity markets, the rollercoaster ride will continue for Australian investors,” Professor Fang said.

“But the core fundamentals haven’t changed, so mum and dad investors should hang in there and see through this period of uncertainty and diminished confidence – don’t just sell for the sake of it.”

As for China, the economy that has caused much of the panic, Professor Fang believes the country’s misguided attempts to find a circuit breaker for its falling share market was a key contributor to the fall of Australian markets this year.

“China’s market intervention – to suspend the trading of shares in companies which have fallen five per cent – is only increasing selling pressure,” he said.

“In a slowing Chinese economy, such circuit breakers send a signal to investors that something is not right and that adds to the fear and anxiety.

“China aside, the Greece debt problem has not been solved and the refugee crisis gripping Europe will put more pressure on national economies already under a great deal of pressure.”

There are indeed global pressures and to brush them under the carpet and say the market is in good shape would be to deny reality, however panic in this climate is unwarranted.

To paraphrase Pascoe, the biggest danger (to the market) is in “spreading fear”.


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