Putting market volatility into perspective
J P Morgan AMC puts forth an interesting perspective backed with data.
Investment Implications
- Significant drawdowns are part of the nature of equity investing and occur in most years. A drawdown of this size is not uncommon in years that ultimately deliver positive returns to investors.
- While there are clear challenges in commodity markets and some emerging market economies, these are well defined and do not reflect a major deterioration of economic growth or corporate earnings in most of the developed world.
- The impact of lower commodities prices, steady inflation, and strong economic growth will continue to bode well for Indian markets.
- Therefore, this sell-off is creating opportunities for investors to buy quality companies, with bright earnings outlooks, at lower valuations than just a few weeks ago. Differentiating between regions and sectors primed for further growth and those that will struggle will be key for investors today and in coming years as the bull market continues to mature.
- The rally in safe-haven assets and currencies demonstrates once again of the importance of diversification as a tool of risk management.
