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Events that shape our world Posted on October 9, 2018
Almost every day major events occur around the world that, each in their own unique way, have a positive or negative influence on markets in various territories. Some events are expected, although the outcome is still unknown, such as the Australian Federal election in September this year, or interest rate announcements from the RBA. Many events come as a complete surprise though, each with its own unique effect on investor sentiment which, as illogical as it might sometimes be, can have a powerful effect on market movements.
Consider for example that the combined value of all self-managed super funds (SMSFs) in Australia is $474 billion. Currently 28.6% of these funds, or around $135 billion, is held in cash. As members of SMSFs begin to read various signs from around the globe, such as encouraging news about the strength of the US economy or a cut in interest rates by the RBA, they will likely decide to move out of cash and into another investment class. This positive sentiment may cause billions of dollars to move around the system.
Events can be unexpected and immediate such as natural disasters or for example, the Boston Marathon bombings that were at least partially responsible for an instantaneous drop of over two per cent in the American S&P 500 stock market index. However, the effect of such a specific incident is unlikely to be long lived.
More positively from the US we’ve had news of the nation’s economy growing at an annual rate of 2.5% in the first three months of the year. It was an improvement on the previous year and was partly credited to the fastest quarterly rise in consumer spending since late 2010, itself a positive marker of American consumer sentiment. While it’s not a conclusive sign of the world’s largest economy accelerating out of its post-GFC doldrums, this 15th consecutive quarter of growth continues to inspire confidence in markets around the globe.
Confidence is such an important driver in today’s investment environment. So what events are coming up in the near future that are likely to have an effect on various investment classes?
The first and most visible is the Australian Federal election, an event that tends to send the business world and individual investors into a holding pattern. Organisations and individuals wait for indicators around what changes a new government is likely to make, and how such changes will affect them.
This year also sees major elections in Iran and Germany, both of which will be watched closely by the finance world because of their political importance to matters in the US and Europe.
Another influential event on the Australian market is the regular announcement of economic data from China, a nation whose fortunes and movements are intimately tied to our own. There are signs that growth is slowing to a more sustainable rate with many investors believing this could be a good thing. Much of China’s growth, after all, was fuelled by enormous levels of government spending. The country’s economy is still expanding at a rate most nations only dream of, but that rate is several per cent below what it was a few years ago.
Of course, announcements of growth or recession from Europe and the US will also continue to inspire or spook the market, as will decisions on increases or decreases in the cash rate. After all, very few organisations read the signs in as much detail as the RBA.
It all points to the fact that upcoming and recent events, whether expected or not, are worth discussing with your financial adviser. This way you can ensure your portfolio is best placed to help you achieve your financial objectives.