While it is a nervous time for investors at the moment, there is no need to start panicking just yet because the global events playing out are unlikely to be as significant as they currently appear, says David Bryant, chief executive officer of Australian Unity Investments.
“For example, while the Chinese share market is in the throes of what is a pretty dramatic correction, it must be viewed against the fact that the market is up 150 percent from where it was last year.
“This puts the size of the correction in a slightly different perspective.
“It is also coupled with the fact that the Chinese government is taking action, and will continue to do so until some balance is restored, although arguably they should have had controls in place before the market started its run.”
Mr Bryant said the Chinese government has previously focused on stabilising the housing market while maintaining solid economic growth. That attention has now turned to managing other financial market challenges.
“The size of the Chinese economy makes it a major management challenge and the government is right to focus on prioritising the urgent aspects.
“It follows that the work it has been doing in supporting jobs and construction will, for a while, be more limited, resulting in less building and construction. That is what is adding to the woes for commodity prices.”
Mr Bryant added that the situation in Greece is also affecting global share markets, but this is more to do with the investor uncertainty.
“While this uncertainty is not going to be over for while, things should be a little clearer after this weekend.
“In my view it is now quite possible we will see Greece exit the eurozone monetary union, but this will not be the end of this Greek tragedy as there doesn’t appear to be a plan ready for them to handle their problems if they do exit.
“It is very unlikely that however it turns out in Greece, there will be a major impact on the Australian economy, although markets will be volatile as this is worked through.
“The issue is simply one of stability and investor confidence. Most importantly the ring-fencing of the Greek debt largely into a stabilisation fund means that it is the eurozone members that hold all of the cards.
“The contagion fear that provided Greece with leverage in 2010 is gone, and as such it is now Greece that must adapt to whichever deal is on the table.”
Source: Australian Unity Investments
