Equity markets rebounded in October after a market correction in the September quarter. Volatility eased after the US Federal Reserve (the Fed) delayed the first rate hike and the European Central Bank (the ECB) implied it would expand its QE program in December. Chinese monetary policy was also eased during the month. In Australia, the RBA retains a ‘glass half full’ view on the economy and seems to be on hold in the short term, with an easing bias if growth continues to disappoint.

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An increase in risk aversion swept through global financial markets in the September 2015 quarter. Equity markets retreated, commodity prices fell, government bond yields tightened and credit spreads widened. It is hard to pinpoint a single catalyst but the most obvious negative news was the continued slowdown in China and the apparent bungling of the Chinese authorities in its attempt to halt a sliding Shanghai share market. But the increase in risk aversion was not just about China, there are also concerns about slowing global growth generally, particularly in emerging economies.

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Genuine concerns over a slowdown in global growth, particularly in Asia, have led to a correction in global equity markets. The key to markets stabilising will depend on Chinese actions to restore confidence or simply market’s falling to a point where company valuations become compelling to longer term investors.

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The turmoil in global investment markets has continued into this week, although the last few days have seen a bit of stabilisation and improvement in several markets. From their highs to their recent lows major share markets have now had the following falls: Chinese shares -43%, Asian shares (ex Japan) -23%, emerging markets -22%, Eurozone shares -18%, Australian shares -16%, Japanese shares -15% and US shares -12%. Such falls are painful for investors. This note looks at some of the main issues.

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Last quarter, Lonsec wrote how financial market conditions seemed not too hot, not too cold but just right for equities. Interest rates remain very low, inflation is low and growth is expected to remain moderate. We also pondered what could go wrong and identified the key risks as ‘inflation surprise’, ‘deflation grind’ or something relating to geo-political events in Europe (Greece, Ukraine) or the Middle-East.

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What type of investor are you? Are you as rational as you think you are? When it comes to investments we often behave quite strangely and to our own detriment. The field of study that focuses on this important area is behavioural finance and understanding the basics might just help you to avoid some classic traps.

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The Australian equity market continues to underperform global markets in recent months with banks, consumer staples and resources the main laggards. Australian banks and consumer staples are facing increased competition which has led to earnings growth downgrades. Resources continue to range-trade with no real direction as yet.

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Last night Joe Hockey released his second Federal Budget (2015/16).  By all accounts, this was somewhat boring Budget, due mainly to the lack of surprises given many of the Budget initiatives were released (in detail) in the days leading up to Budget night.

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Blistering start to 2015 - The Australian market rallied over 10% or 600 points in January and February. 

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In the financial advice world, there are several ‘moving parts’, that when brought together, form the basis for a sound financial planning outcome.

One key component is ensuring that the investment recommendations provided to clients incorporate investments that are spread across a diverse selection of underlying investments, broadly in line with the client’s risk profile (i.e. their attitude to loss of capital and underperforming a specific benchmark).

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