Volatile Returns

The value of investments can go down as well as up…

The second half of May saw a sudden bout of jitters hit global stock markets. As the graph shows, until mid-May the major markets had been enjoying a good 2013, with last year’s various concerns (Eurozone, US fiscal cliff, UK deficits, etc) seemingly forgotten.

Then, on 23 May, Japan’s Nikkei 225 plummeted by 7.3%, its biggest one-day fall since the March 2011 earthquake and tsunami. Other markets duly crumbled in Tokyo’s wake, although not to the same extent. The blame for the fallout was mostly pinned on one or both of the following:

The previous evening Ben Bernanke, chairman of the US Federal Reserve, had raised the possibility that the process of quantitative easing (QE – ‘printing money’) could be phased down in coming months. QE has been seen by many as one of the reasons behind the global rally in share prices – all that extra money has to go somewhere.

The China Manufacturing Purchasing Managers’ Index, released early on 23 May, hit a seven-month low. The reading was 49.6 – any figure below 50 implies a contraction. China has been the global growth story, so signs that it may be slowing are a worry for investors.

Whether either was the true cause, nobody knows: there is always a temptation to pin events to market movements rather than leave them unexplained. In the final week of May – shortened by a Monday holiday in some countries – markets remained volatile. It could all be just ‘noise’. Looked at over the month as a whole, the main US, UK and Japanese indices were virtually unchanged.



Dark blue: Nikkei 225

Red: S&P 500

Pale blue: FTSE All-Share

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.


7th June 2013