We’ve just completed the first quarter of 2018, and it seems like a good time to take stock of share performances. Australians are starting to show an increasing interest in investing overseas, so it’s crucial to keep an eye on those markets. They may seem far away but with portfolios diversifying every day – and rightly so – those offshore financial shake-ups can be felt right here in our Australian pockets. Here are some of the surprises we’ve encountered so far.
Many news sources were quick to describe what happened to the Dow Jones as a crash – because it makes better headlines. In reality, February 5th saw the Dow Jones lose 1,175 points, with intraday figures showing the loss was nearly 1,600 at certain points in the day. That hadn’t happened in more than six years.
The DJIA (Dow Jones Industrial Average) gauges the performance of 30 major companies including Coca-Cola, Microsoft, General Electric, and Exxon. This makes DJIA one of the most keenly followed indexes in the financial world. Statistically, this 1,500 point drop was worrying, but it was around 5% of holdings and doesn’t constitute a crash.
For reference, the market crash that launched the Great Depression in 1929 was triggered by a consecutive two-day drop of 13% on day one and 12% on day two. Market crashes are generally defined by drops of 20% or more. The DJIA fall in February was more of a market correction. Also, from January 29th to February 7th, MSCI lost 7.5%, and FTSE 100 dropped 8.2%.
From about mid-month, there were a few shake-ups. The Dow dropped 5.66%, NASDAQ went down 6.54%, and S&P 500 experienced a 5.95% decline. These are three major American exchanges, and the cumulative result was a 2-year low in terms of weekly stock performance. Trading in other markets wasn’t much better, with the MSCI EAFE losing 2.64%. While stock performance isn’t an exact science, this dip is largely assumed to be caused by Trump. Prior to these falls, he imposed tariffs on aluminium and steel imports.
Then, early in March, China was accused of appropriating American Intellectual property. In response, Trump ‘punished’ them by approving a new set of tariffs against Chinese imports, tariffs that could cost the Asian nation upwards of $60 billion. China said it would ‘review its options’ which included a retaliatory campaign against well over 100 American products, as well as possibly engaging the WTO and boycotting US T-Bills. The market ripple is a highly probable cause of that week’s trading decline.
Now that Easter is gone and Labour Day is behind us (globally, since in the US Labour Day isn’t until September), it will be interesting to see how the markets will adjust. And this – more than anything else – emphasises the importance of having an internationally diversified portfolio, because, in this instance, the troubles in the US market could potentially be counterbalanced by the Asian response to China’s plan on the US import tariffs.