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Aug 15, 2019 4:49:11 PM

Sharemarket wiped out $50 Billion - Where to Now?

“The Australian share market has wiped out $50 billion worth of gains it made in the past two months “ 1

The benchmark ASX 200 has fallen 2.6 per cent to 6,427 points by 2:00pm (AEST), with nine out of every 10 stocks in the red” 1

The recent decline in the domestic stocks is part of a global sell-off amidst recession fears in the US coupled with trade-war speculation along with all-in-all lacklustre economic forecasts.

China experienced its weakest factory output in 17 years, with its latest official figures showing that industrial production grew by an annualised 4.8 per cent in July”

“The cause of the market panic was a bond market phenomenon known as the "inverted yield" — when interest rates on America's long-term (10-year) government bonds fall below short-term (two-year) rates.

It has been regarded by traders as a reliable predictor of US recessions in the past few decades. Furthermore, this "inversion" in bond markets has not occurred since 2007, just before the global financial crisis.” 1

A more chronic - and local - cause for concern is the 12-month -8.37% decline in house prices across Australia. 2

The RBA also cut the cash rate to all-time lows in July to 1.0%3  - leaving little-to-no room for monetary stimulus – which may signal that the worst is yet to come.

After enjoying years of expansionary monetary and successful performance of Risk-On assets – it appears the tide may be turning…

“You only find out who is swimming naked once the tide goes out…” – Warren Buffet

As we enter the contractionary phase of the credit cycle, we will see capital flight away from traditional risk-on assets - like shares and property – and increase investment into inflation-hedged assets – like bonds and alternatives.

For investors, it may be prudent - and timely - for a re-appraisal of your portfolio’s nakedness…

We here at Walker Capital have held the belief all year that the domestic stock market is overpriced - beckoning a long overdue correction. As such, we remain steadfast in our absolute return investment style and will be looking to capture market volatility in either direction.

Walker Capital provides investments uncorrelated to shares and property. Given Walker Capital’s MDA products are aggressive, we recommend no more than a 10% allocation of a client investable net assets.

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1. https://www.abc.net.au/news/2019-08-15/asx-tumbles-on-us-recession-fears/11416348)

2. https://www.rba.gov.au/statistics/cash-rate/
3. 5-capital-city aggregate house pricing index
4. https://www.corelogic.com.au/research/monthly-indices
5. Warren Buffet

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