Question

How have investors responded to the recent volatility in the markets?

Answer 1

Sol:

• Causes of recent market volatility:
• · A market without volatility cannot be expected now-a-days. The market has shown extreme fluctuation for last couple of months.
• · The volatility was increased mostly due to downgrading US credit rating from AAA to AA+ by Standard & Poor and also warned to downgrade further to AA if the same situation be prolonged.
• · COVID-19 is having an unprecedented impact on markets, due to lockdown in most of the places all over the world.
• Reponses of investors:
• · Most of the investors remember the fundamentals that no matter how the market behaves, equities are still having good go in long run unless it is the time of unusual market reaction like COVID -19, No one knows the short-term path of markets i.e., The worst may not be over for equity markets, we may retest the lows, or we may not.
• · Portfolio rebalancing is one of the best practices in highly volatile markets, so that we don’t buy more stocks in a continually falling market is one of the response adopted by investors.
• · Investing in Real estate was one of move by strategic investors to most portfolios in the form of Exchange traded funds (ETF) that buys Real Estate Investment Trusts (REITs) because we believe real estate adds protection, yield and increased return opportunity to the portfolio. We believe long term-leases provide some protection if the crisis continues, after the stimulus package, we expect real estate prices to go up as inflation expectations rise.
• · Most of the investors dropped from hedge funding, because Hedge fund strategies of all stripes have posted sizeable losses so far.
• · As per the recent news, Shares in mainland China led losses among major Asia Pacific markets on Wednesday as investors withdrew amid concerns over the COVID -19 outbreak beyond China.
• · Since the outbreak of COVID-19, investors have been withdrawing from money market funds even if the securities are all of high quality and very short maturities.

Thank you!