Last week the Dow fell more than 1,000 points. Today we have seen the Australian share market experience the same volatility as in the 2012 global financial crisis with a four per cent slump equating to almost $60 billion being wiped from the value of Australian companies.
The global selloff is being sparked by deflation, poor economic growth and turmoil in China, however some commentators are calling this a market "correction".
The Australian share market has a lot of newcomers with more people in shares than "cash in the bank". Some are arguing that this new wave of investors is driving the volatility as they are unaccustomed to market fluctuations and are quick to jump and drive "panic sales".
At an investment level we know that there has been volatility for most of this year. Consumer sentiment has remained low and many businesses have experienced slow to little growth.
Impacts for business owners and investors
Over the coming months, we expect to see ongoing volatility and increased cautiousness from investors. Here in Queensland this may create the following impacts for local business owners, professionals and directors:
- Reduced purchasing commitments from customers. Contracts may reduce in duration
- Reduction in purchase size. Customers may want to buy one, not 10
- Pressure on pricing, customers seeking discounts and vendors being "shopped"
- People feel less wealthy – they spend less and concentrate on reducing debt
- Volatility saps investment confidence, whether business or personal. Transactions take longer to complete, negotiations take longer and pay days take longer
- Businesses take longer to pay so keep an eye on debtors and chase quickly if required
- Be wary of who you provide credit to. Do your homework and seek references
- In volatile times, cash is KING. Do not chase a sale unless it is profitable and keep an eye on costs
- The markets at the moment are like trying to catch a falling knife. Be careful – don’t get caught in value traps
- Review debt levels and make sure your business and household can handle a short-term cash squeeze
- Always seek quality, professional advice before committing to investment decisions. Now is not the time to cut costs on advice
For more information, please contact Ian Walker from Archer Gowland on 07 3002 2699.
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