Are record-low rates changing market cycles?

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February 06 2020
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The current low-rate environment is having an unusual impact on sharemarkets, with “black swans” such as the coronavirus not leading to usual reductions in asset prices, an ETF provider has said.

In a conversation with nestegg, CEO of ETF Securities Kristian Walesby explained how a “a wall of liquidity” is holding markets up despite the implications the coronavirus could have on world markets.

“What you would have expected, coronavirus to come out, people to be frightened, immediately a 10 to 15 per cent correction.”

“[In this instance] people reacted, markets went down 4-5 per cent in a couple of days, then immediately the markets started going up again,” Mr Walesby said.

Mr Walesby explained that investors are in a unique situation where market shocks cannot have the usual impact because of the sheer volume of funds needing to be invested.

“You’ve got this war between growth markets because they are fuelled by low interest rates and geopolitical or environmental issues, which should really pull down the markets which haven’t been able to because there’s this wall of liquidity and money that people need to invest because putting money in the bank isn’t doing it for you.”

The ETF provider noted that some of these funds are coming from older investors who historically would be putting some of their retirement funds into a term deposit.

“Anyone who is near retirement age who hasn’t got a big enough nest egg, that’s a horrible situation because you’re having to take risk with your savings to try and make sure they get to whatever your target is and know you’re going to get there with no risk.”

“If you don’t invest, your money won’t grow as even inflation will erode that,” Mr Walesby explained.

With more money coming into the market due to low interest rates, Mr Walesby suggested investors are also being forced to re-evaluate prices on assets.

“If you think interest rates are going to stay low for a long time, then you’re in a situation where you’re going to have to reprice stocks and companies that you already think is expensive because the reality is they could go a lot higher,” Mr Walesby said.

Despite not falling as much as previous economic scares, investors that are looking for a buying opportunity are being warned to wait for the market to stabilise instead of trying to pick the bottom.

“Don’t predict when the buying opportunity is. Wait for the market to begin to rally, wait for it to come up 10 or 15 per cent and then buy in. Don’t try to pick the bottom because many people get destroyed by that,” Mr Walesby concluded.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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