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Global sell-off begins as recession fears reach critical
Investors are reacting to heightened geopolitical tensions and weaker numbers out of the Eurozone by selling their equities amid fears of a global slowdown.
Global sell-off begins as recession fears reach critical
Investors are reacting to heightened geopolitical tensions and weaker numbers out of the Eurozone by selling their equities amid fears of a global slowdown.
It’s had an impact domestically, with the Australian sharemarket losing all gains from the last two months.
The ASX 200 fell by 2.89 per cent on Thursday, while the All Ordinaries Index dropped comparatively before it closed at 6,490.80 points.
Globally, markets have had their broadest sell-off since February 2018, with every sector of the S&P 500 finishing in the red and 94 per cent of volume on the NYSE in declining stocks, according to analysis from Saxo Bank.
Saxo Capital Market’s Australian market strategist, Eleanor Creagh, has pointed out inverted yield curves as part of the reason this global panic has occurred, considering the curves have been used to accurately predict the last seven recessions.
This inversion means that the interest rate (or yield) on two-year US government treasury bonds is higher than the interest rate on 10-year government bonds, she explained.
However, while such an inversion does create concern, and significantly raises the risk of a recession, “it is not a foregone conclusion”, according to the strategist.
What can investors do?
Saxo has said that during volatile markets, the adding of defensiveness to portfolios can be suitable a option for investors.
Ms Creagh said it maintains an individual’s exposure to low beta/minimum volatility and quality “in terms of factor exposure as an indirect portfolio hedge, while staying clear of momentum and high beta factor exposure”.
Another possibility being touted for investment opportunities are the traditionally safer assets of gold and cash reserves.
“Precious metals and gold miners will continue to outperform as investors seek out safe havens to protect against volatility,” she offered, noting gold as “remaining attractive” in “an environment of cheap money against a backdrop of the return of central bank largesse where the purchasing power of currencies is persistently eroded and real rates continue their collapse”.
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