Gareth Says – Market Volatility

January has been the worst month on World Markets since March 2020.
Markets were nervous all month, for a number of reasons:

Firstly, interest rates worldwide looked set to rise as inflation takes hold.  The Fed, in the US, didn’t raise interest rates, but intimated they would, but the Bank of England did from 0.25% to 0.5%.  Other Countries that have recently increased interest rates include South Korea, Russia, South Africa, China, Brazil and Argentina. 

The reason why they raise rates is an attempt to control inflation.  Quite often, fear of a pending event is worse than the reality, perhaps this is why markets have calmed in February.

However, there are other things that worried markets.  A potential war between Ukraine and Russia didn’t help and is now probably factored into the market and the potential collapse of a Chinese property company ‘Evergrande’.  The company effectively re-built many Chinese cities, it borrowed heavily to do so and is now struggling to pay the interest on the debt.  If it collapses, there will be a domino effect.  The company claim that they are responsible for 3.8 million jobs in China, so it is a major worry. Markets appear a lot calmer at present but volatility may return depending on the outcome of the two outstanding items above.

Gareth.