Markets strong despite disasters
March has been an exceptionally challenging month with tragedies on a grand scale in Japan and the Middle East.
Nevertheless stock markets around the world showed remarkable resilience and the ASX300 accumulation index finished March up 0.7%. One reason for this is because Japan is still the world’s third largest economy, and even though it accounts for around 9% of world GDP, the affected regions make up around 7% of Japan’s economy – this translates to less than 1% of the global economy.
If you invest in shares you need to understand that you are becoming a part owner of a business. Even though share prices will bounce around when bad news happens, as it always does, the bad news is often isolated and may not affect the company in which you hold shares. In fact, natural disasters may be very positive for a company because of the rebuilding that inevitably follows.
The Brisbane floods are a good example – the economy was initially flat when the floods came but now the building trade is heating up as flood affected victims start to rebuild and refurnish their houses.
One of the benefits of the present hiccups that are occurring around the world is that the Reserve Bank is showing no inclination to put up interest rates right now, even though business lending is up and confidence is growing. I still believe we will see a small rise before the end of the year, but all the signals for the next few months are “steady she goes”.
This means you formulate strategies to save tax and build wealth and then stick with them, irrespective of what markets are doing.
Noel Whittaker is a director of Whittaker Macnaught Pty Ltd. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. His email is email@example.com