Market Update: Weathering current uncertainty

August 27, 2021

New Zealand’s second nationwide lockdown has been a reminder that we live in uncertain times. And while the return of restrictions is unsettling for many New Zealanders, the move was also largely expected – a case of ‘when’, rather than ‘if’.

From an investment risk standpoint, the key message is that really not much has changed: it is a short-term setback in your long-term investment journey.  Your investment with NZBritannia is very well diversified across geographies and most sharemarkets are already pricing in expectations for 2022 and 2023.

The plan to safely re-open our borders will continue, as announced earlier this month by the Government. And the success of this pathway will still be dependent on our vaccination rate – and that of the rest of the world.

In the meantime, when it comes to the economy and the sharemarkets, some underlying factors and trends are likely to shape the second half of the year. To help you make well-informed decisions about your investments, read on for our quarterly market update, bringing you a rundown of the key things to know.

The economy plays wait-and-see

If 2020 was the year of unprecedented disruption on a global scale, 2021 is seeing the world cautiously redefining what ‘normal’ looks like, albeit under a new paradigm. What 2022 will be like is obviously more uncertain: as we keep seeing over and over again, even relatively short-term predictions are elusive.

What we know so far, eighteen months into this pandemic, is that Covid-19 is here to stay – at least for the foreseeable future.

Overall, the coming months will likely be marked by a ‘wait and see’ economy on many fronts: trends in property prices, immigration policies, inflation, and talent crunch will be among the key factors to keep on our radar in the remainder of the year and beyond.

Is a market correction on the cards?

We’re of the view that the market will remain volatile and uncertain for the time being. While we’ve seen a good recovery in the past 18 months, with Covid still influencing performance, the share market may experience a correction in the near future.

Usually, a market correction can last anywhere from days to months, and it’s defined as a decline of at least 10 per cent from a recent high in the financial markets. It’s important to note that share market corrections are not uncommon: in fact, they’re a normal part of the investing cycle, and not a necessarily negative one either. While they might impact the performance of your investments, they can also create opportunities to generate returns when the market rebounds.

The importance of advice in a volatile time

In times of uncertainty and volatility, seeking advice for your investment decisions can make all the difference. Of course, we can’t predict exactly if and when the next downturn will occur, but we can help you ensure that your investment strategy remains balanced with your risk appetite.

Over the medium-to-long term, investors who hold their position are more likely to weather a correction than those who make impulsive decisions. And as research has found, financial advisers are instrumental to making confident decisions during periods of heightened volatility, by providing clear and well-informed advice.

The key thing is to avoid reacting to the market, but rather keep sight of your goals and align your strategy with your risk tolerance comfort level. Efficient diversification is one key way to minimise investment risk: if you’d like us to review your portfolio and enhance its future-readiness, we welcome you to contact us.

The risk of chasing trends

Just as past performance is not an indication of future performance, trying to ‘time’ the market is never a good idea. Oftentimes, the moment ‘the next big thing’ gains traction, it’s already too late to jump on the bandwagon. So while it makes sense to keep informed of emerging opportunities and trends, particularly in volatile times, it’s also important to keep a clear mind and choose investments based on a comprehensive assessment of your circumstances.

Cryptocurrency is a good example to illustrate this.  There’s a lot of talk around it at the moment, with some commentators likening the crypto trend to a ‘new gold rush’. Cryptocurrencies are sometimes praised for their inflation resistance and portability, but there’s no denying that exchange rate volatility entails a significant element of risk, which in many cases makes crypto unsuitable as a vehicle for retirement planning.

Having said that, if it is of interest and you’d like to explore your options in this area, once again, please don’t hesitate to seek help.

We’re here to help

During times of uncertainty, it can be difficult to stay focused on your goals and investment journey in perspective. Volatile times can challenge your discipline and commitment, and this is where the expertise of a financial professional can benefit you.

The value of advice lies in the peace of mind that your strategy is designed around your objectives, your investor personality, and your larger financial situation. If you’d like to discuss your investment needs, get in touch anytime: we’re here to help.

The information contained in this article is of a general nature only and does not take into account individual circumstances. It is not intended to provide comprehensive or specific financial advice. Before making an investment decision you should talk to your Britannia Financial Adviser.