Tracey McNaughton, the chief investment officer of wealth manager Escala Partners, said Wall Street’s volatility index (VIX), also known as the “fear index”, had spiked to its highest level since data was recorded.
“Volatility is at levels we have never seen before and it is so high because there is so much uncertainty” Ms McNaughton said. “It’s a market that you want to be sitting on the sidelines for,” she said. “Retirees would be suffering a lot of losses, and there not a lot of places to hide.”
‘Retirees would be suffering a lot of losses, and there not a lot of places to hide.’
Escala Partners CIO Tracey McNaughton
Andrew Boal, chief executive of Rice Warner, said retirees who could lose up to 10 per cent of their retirement savings as a result of this week’s share price plunge. “It is bad news for them,” Mr Boal said. But Mr Boal advised against getting out of the market. “This could be the bottom and markets improve or we get much worse news next week and it gets worse.”
Friday’s volatile session capped off a turbulent week for markets. In the US, the Dow Jones Industrial Average fell by 10 per cent on Thursday night, its biggest single-day fall since the 1987 “Black Monday” crash, while Australia’s S&P ASX/200 index suffered its worst fall since the global financial crisis this week – twice – sliding 7.3 per cent on Monday and 7.4 per cent on Thursday.
Investment bank Citi’s head of investment specialists, Gofran Chowdhury, said market volatility and so-called “black swan” events have become the new standard for investors.
“This uncertainty is the new norm,” he said. “Volatility, uncertainty, complexity, ambiguity. You can’t predict the market anymore. No one predicted coronavirus.”
KPMG chief economist Dr Brendan Rynne said unanswerable questions were driving market volatility.
“How severe is this going to be? How long is it going to take to resume to normal business activity? Those two issues still remain unresolved.”
“And the longer that uncertainty remains, the more volatile the market is going to be, the more pessimistic the market is going to be and the consequence is the more prices are going to be revised downwards.”
AMP Australia chief investment officer Lakshman Anantakrishnan was more upbeat about the lower prices. “There will absolutely be opportunities. When you see fallbacks in markets they are followed by a strong rally in markets.”
When asked how long the volatility will last, Mr Anantakrishnan said: “It’s hard to say. It might get worse before it gets better.”
Outside of equities, head of Australian economics at ANZ Bank, David Plank, said the signs of stress in inter-bank funding markets had risen overnight.
Mr Plank noted that the bank bill swap rate had risen by about 6 basis points, and it continued to widen from bond rates. “That is evidence of funding pressure or stress in the market,” he said.
Even so, he said this was still much less dramatic than during the global financial crisis of 2008, when bank bill swap rates blew out by about 40 basis points despite much bigger cuts in the RBA’s cash rate.
“We are nowhere near those types of levels but there’s stress, and that stress will probably remain there for some time, just given everything that’s going on,” Mr Plank said.
Mr Plank said credit spreads on non-bank corporate bonds were also widening – a further sign of nervousness about companies being able pay their debts.
“There’s now questions being asked about whether a lot of leveraged companies are going to be able to pay their debt,” Mr Plank said.
Sarah Danckert is a business reporter.
Charlotte is a reporter for The Age.
Clancy Yeates is a business reporter.