Keeping recent volatility in perspective

You may have noticed some sizeable movements in global share markets recently. Seeing your KiwiSaver savings or investment balance go down can understandably feel unsettling.

Periods like this are never comfortable, but they are a normal part of long-term investing. The important thing is to understand what’s driving these movements, keep them in perspective and stay focused on your longer-term goals.

What’s been happening in markets?

Much of the recent movement in global share markets has been driven by US technology and artificial intelligence (AI) related companies.

These companies have delivered some of the strongest returns in recent years, as expectations around the potential of AI have grown. This has seen significant investment in data centres, semiconductors and the infrastructure needed to support AI. More recently, investors have started questioning how quickly this investment will translate into company profits and whether some share prices had risen too far, too quickly. As investor expectations have shifted, some of the companies that previously performed the strongest have experienced some of the biggest falls. Because the world's largest technology companies represent a significant proportion of major US and global share markets, movements in their share prices can have a noticeable impact on markets more broadly.

Political uncertainty following the US midterm elections has also added to market uncertainty, with changes in the balance of power in Washington potentially making it more difficult to pass legislation and leading to greater debate around government spending, government debt and fiscal policy.

Together, these factors have contributed to larger movements in global share markets.

What does this mean for AMP investors?

AMP’s diversified portfolios spread investments across a wide range of companies, countries and different types of assets. While diversification can’t prevent your balance from falling when markets fall, it can help reduce the impact of changes in any one company, market or investment.

Different types of investments can also perform differently at different times. For example, shares may fall while bonds or other investments may prove more resilient. Performance can also shift from one country or industry to another over time.

This is why diversification matters. Rather than trying to predict which investment will perform best next, diversification spreads your investment across different opportunities for growth, helping to manage risk as market conditions change over time.

Our outlook: Looking beyond the headlines

While recent market movements have been sharp, our perspective is more balanced than the headlines might suggest.

We expect there may be further ups and downs ahead, with political uncertainty, government borrowing, interest rates and questions about the scale and profitability of AI investment all likely to continue influencing markets. However, there are also reasons to remain positive about the longer-term outlook, with company earnings continuing to support markets, and higher interest rates improving the income available from bonds.

We also continue to see AI as an important long-term investment theme. Recent falls in AI-related companies don’t necessarily mean the longer-term opportunity has disappeared. Instead, investors are becoming more selective about which businesses can turn AI investment into sustainable growth and where expectations may have become too optimistic.

Political developments are also contributing to short-term market volatility, but history provides an important reminder not to let politics drive long-term investment decisions. Markets ultimately tend to refocus on company earnings, economic growth, interest rates and the other factors that determine long-term investment returns.

For AMP, this reinforces the value of diversification, and having investments spread across different markets and asset classes to help manage risk through changing market conditions.

Why stay focused through market ups and downs

When markets fall, it is completely natural to feel like you need to do something. Moving into cash can feel safer, but trying to predict when to move in and out of markets can be difficult. Markets often begin recovering before economic conditions or the news headlines start to improve, so waiting until things feel more certain can mean missing some of the strongest days of a market recovery.

For investors in an appropriate fund with a long-term investment timeframe, staying invested gives you the opportunity to benefit when markets recover. For those making regular KiwiSaver or investment contributions, falling markets can also mean your contributions buy more investment units at lower prices.

Nobody can reliably predict exactly when markets will recover, and it is possible we will see further volatility from here. Rather than trying to predict what markets will do next, it can be more helpful to focus on the things that you can control: your goals, investment timeframe, diversification and the level of investment risk that’s right for you.

If your circumstances, goals and investment timeframe haven't changed, short-term market movements don't necessarily mean you need to change your long-term strategy.

What to do if you’re concerned or need more information?

We understand that market volatility can be unsettling, and we’re here to help. If you’re concerned about your investments, we encourage you to speak with your adviser. Sometimes the most valuable action during uncertain markets is simply checking that your investment is still right for you and getting the reassurance you need. For questions or more information, visit amp.co.nz/contact or call 0800 267 005.

Investment values can rise and fall. This information is general in nature and does not take account of your personal circumstances, financial situation or goals